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ISBN 1-84544-086-2
ISSN 0265-2323
Volume 23 Number 1 2005
International Journal of
Bank Marketing For the financial services sector Product portfolio management and corporate performance in the banking sector Guest Editor: Dr Spiros Gounaris
www.emeraldinsight.com
International Journal of Bank Marketing
ISSN 0265-2323 Volume 23 Number 1 2005
For the financial services sector
Product portfolio management and corporate performance in the banking sector Guest Editor Dr Spiros Gounaris
Access this journal online _________________________
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Editorial advisory board __________________________
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Guest editorial ___________________________________
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Customer perspectives on the role and importance of branding in Irish retail financial services Deidre O’Loughlin and Isabelle Szmigin ____________________________
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Re-engineering service quality process mapping: e-banking process Raphae¨l K. Akamavi____________________________________________
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Learning during developing and implementing new bank offerings Eric Stevens and Sergois Dimitriadis_______________________________
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American consumers’ attitudes towards commercial banks: a comparison of local and national bank customers by use of geodemographic segmentation Erdener Kaynak and Talha D. Harcar _____________________________
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CONTENTS
CONTENTS continued
Product development in UK retail banking: developing a market-oriented approach in a rapidly changing regulatory environment David J. Slattery and Joseph G. Nellis ______________________________
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Enhancing microfinance outreach through market-oriented new service development in Indian regional rural banks Philip Megicks, Atul Mishra and Jonathan Lean _____________________
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Note from the publisher ___________________________
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EDITORIAL ADVISORY BOARD Dr Frank B. Abramson Relationship Consulting Group Ltd, UK
Professor Barry Howcroft Loughborough University, UK
Dr Mohammed Almossawi University of Bahrain, Bahrain
Dr Barbara R. Lewis Manchester School of Management, UK
Professor Michael Baker Westburn Publishers Ltd, UK
Professor Arthur Meidan Sheffield University, UK
Professor Ashish K. Banerjee Indian Institute of Management, India
Professor Luiz Moutinho University of Glasgow Business School, UK
Professor A. Tansu Barker Brock University, Canada
G. Lynn Shostack Joyce International Inc., USA
Professor James G. Barnes Memorial University of Newfoundland, Canada
Dr Kate Stewart University of Ulster at Jordanstown, Northern Ireland, UK
Professor dr Jose´ M.M. Bloemer University of Nijmegen, The Netherlands Mark Colgate University of Auckland, New Zealand Professor Donald W. Cowell University of Central England, UK Professor Jean-Charles Chebat HEC Montreal School of Business, Canada Professor Leslie de Chernatony The Birmingham Business School, UK Professor Christopher J. Easingwood Manchester Business School, UK Dr Jillian Dawes Farquhar Oxford Brookes University, UK
International Journal of Bank Marketing Vol. 23 No. 1, 2005 p. 4. # Emerald Group Publishing Limited 0265-2323
Professor Trevor Watkins South Bank University, UK Professor Stephen Worthington Monash University, Australia Professor Mike Wright University of Nottingham, UK Dr Ugur Yavas East Tennessee State University, USA Dr Mosad Zineldin Va¨xjo¨ University, Sweden
Guest editorial About the Guest Editor Assistant Professor Spiros Gounaris received the degree of Master of Science in Marketing from Strathclyde University in 1991 and received his PhD in Marketing from Athens University of Economics & Business in 1995. Since December 1997 he has been a member of staff of the Department of Marketing and Communication at Athens University of Economics & Business. He has been a Member of the European Marketing Academy since 1993 and is a Founding Member of the Greek Marketing Academy. He has been involved in a large number of academic and consulting projects. He has published in various international journals including Industrial Marketing Management, Journal of Business Research, European Journal of Marketing, Journal of Business and Industrial Marketing, Journal of Services Marketing, Journal of Product Innovation Management, International Journal of Bank Marketing, etc. He received the Highest Quality Rating Award from ANBAR (now Emerald Reviews) for the paper entitled “Marketing orientation and company performance: a comparative study of industrial vs. consumer goods companies”, published in Industrial Marketing Management, Vol. 26 No. 5, 1997. He also received a best paper award for the paper entitled “Market orientation development: a comparison of industrial vs consumer goods companies”, published in the Journal of Business & Industrial Marketing, Vol. 16 No. 5, pp. 354-81, 2001. His primary research, teaching and consulting activities are in the areas of services marketing, market orientation development, internal marketing, customer satisfaction, relationship marketing, B2B marketing, and digital marketing. He is married and the father of two daughters.
Guest editorial
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As services increasingly become a crucial sector of Western economies, the need for scholarly research focusing on the management of product-related decisions becomes stronger. In the financial services sector in particular, deregulation has led to intense and quite diverse competition, while the development of e-banking has added to the intensity of competition. Experience from goods manufacturers has shown that under such conditions, producers’ reactions usually lead to new product launches and the proliferation of their product line. This also seems to be the case with financial service providers. As a result, the amount of resources required to support increases and, consequently, issues of both effectiveness and efficiency in managing the product line rise. Moreover, research in the field has so far focused mainly on a single area, that of product line assortment, which has two major facets: (1) new service development, which has attracted the majority of empirical studies; and (2) service elimination, which appears to be a growing research stream. Other equally important aspects of the effort to increase both the effectiveness and the efficiency of the management of the financial service providers’ product line have, for the time being, received only sporadic attention. Thus, although what contributes to a successful new service and to a successful service elimination has started to be better understood, there are many issues regarding the management of the product portfolio that need to be addressed in the
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 5-7 q Emerald Group Publishing Limited 0265-2323
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future. For instance, who participates, with what role and through which coordination mechanisms when developing the service blueprint is a very significant issue that has not received much empirical examination. Similarly, there is little empirical data to elucidate appropriate strategies regarding the provision of supplementary services over different phases of the core service life cycle. Likewise, branding decisions have also received limited attention. As many financial service providers tend to pursue corporate, rather individual service brands, it is important to assess empirically the impact of each alternative on various aspects of company performance, especially since the first signals of financial services super markets have been recorded. In fact, it is interesting to note that almost every text book in services marketing draws heavily from existing knowledge regarding manufactured goods when it comes to the issue of product line management. It would be particularly interesting to understand the similarities and differences between goods and services when it comes to this specific aspect of marketing strategy that deals with the firm’s product. Since differences have been recorded when it comes to successful new service development and existing service elimination, it would intuitively be naive to expect that all other product-related decisions are identical or very similar. Hence, the objective of this special issue is not only to offer a compilation of existing contemporary work, but also to stimulate scholarly inquiry regarding the management of financial institutions’ product lines. More specifically, the paper by O’Loughlin and Szmigin focuses on branding decisions and their impact on consumers’ behavior. The authors attempt to assess the role of brand image in relation to brand experience by studying how functional and emotional values affect the consumers’ actual experience with using the brand. The paper by Akamavi examines the operational process used once the customer has decided to open a certain type of account with a certain bank. This case study, using qualitative data, manages to shed light on both potential and actual bottlenecks in the process, which may have a direct impact on perceived quality and the encounter between the client and the serving employee. Moreover, a re-engineered process (e.g. service process innovation – e-process or virtual process) is proposed in order to deal with problematic areas so that efficiency, productivity and customer satisfaction are all increased simultaneously. Stevens and Dimitriadis, in their paper, probe the development process of new services with the aim of identifying potential areas and areas that may impede the effective management of the process itself. Their work has the advantage that it is a longitudinal case study, which allows for a better depiction and understanding of how the organization responds to changes introduced in the process, adopting such changes as part of a learning process. Kaynak and Harcar focus on segmentation and its impact on a bank’s ability to develop services that better fit customers’ needs. Their study delineates the substantial differences between customers of local and national banks regarding various aspects of their offering, including for instance the relative importance of bank service charges and how a bank can take advantage by being responsive to specific targeted segments. The paper by Slattery and Nellis looks at the degree to which product portfolio related decisions are aligned with the overall environment of the firm. Drawing conclusions for the UK market, they explain why in a highly regulated market financial institutions find difficult to adopt a market-oriented behaviour when developing new
services. Their manuscript concludes with directions for future research regarding the impact of environmental variables on actual new product development practices. Finally, Megicks, Mishra and Lean offer the non-European experience in new service development and how market orientation can influence the effectiveness of the new service development process in Indian regional rural banks. The authors draw from the existing literature to suggest a comprehensive framework for enhancing the performance of such financial institutions, which lack the appropriate culture that would otherwise have allowed them to improve their financial performance. As a concluding comment, one has to keep in mind the objectives of this special issue, which were two-fold. The first objective was to offer a compilation of contemporary scholarly work around product-portfolio related issues in the financial services sectors. The second objective was to provide a stimulus for researchers in the field. There is still much to be learned about how product lines developed by banks and other financial institution can simultaneously serve both the customers’ and the bank’s needs in an efficient manner. As new channels develop and customers’ behavior changes, it would be to the benefit of both academics and practitioners to understand what, if any, are the limitations in adopting modern marketing management techniques and systems that marketers of tangible goods have now long established. For instance, is it possible to develop the equivalent of the efficient consumer response paradigm for financial institutions under the limitation of the intangible nature of the product and the inseparability of service offering and consumption? Clearly, such questions require extensive research that will transcend the frontiers of “traditional” areas of investigation while also making use of the case study and the qualitative methods of research, which both appear to have receded in favor of more quantitative methods and large samples. Dr Spiros Gounaris
Guest editorial
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The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister
IJBM 23,1
Customer perspectives on the role and importance of branding in Irish retail financial services
8 Received January 2004 Revised April 2004 Accepted May 2004
The current issue and full text archive of this journal is available at www.emeraldinsight.com/0265-2323.htm
Deirdre O’Loughlin University of Limerick, Limerick, Ireland, and
Isabelle Szmigin Birmingham Business School, University of Birmingham, Birmingham, UK Abstract Purpose – This paper explores the role of financial services brand values and compares the importance of process and outcome factors in terms of their impact on customer perceptions, behaviour and experience. Design/methodology/approach – Building on exploratory managerial and consumer research, 50 in-depth interviews were conducted with a quota sample of Irish consumers representing the desired range of demographic and product-related characteristics, including income and financial experience. Findings – Contrary to the literature, functional values are deemed by consumers to be significantly more important than emotional values. In addition, process factors, facilitated through positive interactions with staff, play a comparatively more salient role than outcome factors in building positive brand experience. Research limitations/implications – Further in-depth qualitative and/or quantitative studies need to be conducted with larger sample sizes to address issues in terms of making inferences and generalisations from the research. As this study was conducted in an Irish context, further comparative research should be conducted with other similar financial markets to investigate any underlying cultural bias. Practical implications – It is recommended that financial services providers design brand appeals and advertising messages that are targeted at consumers’ functional financial needs. Furthermore, financial service providers can maximise superior brand experience through a successful integrated strategy of meeting customer functional brand needs in an outcome-driven approach and exceeding customer expectations within a process-driven service experience. Originality/value – This paper broadens understanding and insight into the complex and evolving area of brand management within retail financial services and has far-reaching theoretical and practical implications. Keywords Brands, Brand image, Brand management, Financial services, Ireland Paper type Research paper
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 8-27 q Emerald Group Publishing Limited 0265-2323 DOI 10.1108/02652320510577348
Introduction In the general marketing literature, successful brand management centres on the creation and development of added values (de Chernatony and McDonald, 1998) so that the customer can interrelate and integrate with the brand and the company (de Chernatony, 1999). In a services marketing context, powerful service brands communicate their values through every point of contact they have with customers (Cleaver, 1999). Therefore, service companies should consciously pursue distinctiveness in performing and communicating service, connect emotionally with customers and internalise the brand for service providers in order to build retention
and loyalty with customers (Berry, 2000). Although the study of financial services has received increased attention over the last few decades, it continues to pose challenges for marketers as an academic area of research. Deregulation and technology have caused unprecedented competition between financial institutions, forcing financial service practitioners to re-evaluate their marketing strategies and reassess their approach to branding and service brand experience and delivery. This research explores and evaluates current customer perspectives on the nature and role of branding within financial services. Specifically, the study aims to identify the key brand values currently salient to consumer perceptions and decision making in addition to examining the current role and importance for consumers of outcome and process factors in evaluating financial service experiences. The nature and importance of these brand experiences will be explored and compared to the role and importance of brand image projected by financial service providers through marketing communications. The role of branding in financial services According to the literature, brands are among a company’s most powerful assets (Sheppard, 1994; Batchelor, 1998; Davis, 2000a) and the benefits to the corporation of building successful brands are also numerous and far-reaching, and include creating a differential advantage (Kumar and Ganesh, 1995), commanding price premiums (Doyle, 1998) and building long-term loyalty (Keller, 1993; Dowling and Uncles, 1997). Branding decisions are becoming increasingly important in services, although there has been little service-specific research on this important issue (Van Riel et al., 2001; Moorthi, 2002). Furthermore, brand development is particularly crucial within services where there is difficulty in differentiating products and there is a lack of physical characteristics to evaluate competing service offerings (Zeithaml, 1981; Ries and Ries, 2003). In the context of financial services, there have been recent structural changes largely resulting from de-regulation and new technology (Melewar and Bains, 2002; Harris, 2002) and large-scale changes have occurred in relation to the type and range of products supplied to and demanded by consumers. In addition, there is debate in the literature as to whether the principles of branding and brand building within fast-moving consumer goods (FMCG) should be applied to services such as retail banking (Levy, 1996; Camp, 1996, 1999) and it is suggested that successful management of financial services brands should comply with the particular service characteristics. The importance of staff recruitment and training have also been emphasised at a functional performance level while the brand’s vision and values have been underlined at an emotional level creating customer trust. Hence, the areas of product and brand management have attained strategic importance and have become particularly key for financial services providers (Harness et al., 1998, Streiter et al., 1999). Brand values: importance of process and outcome Marketing theory has long been concerned with the creation of added values, and the general branding literature proposes that brands satisfy functional and emotional needs (Park et al., 1986; Bhat and Reddy, 1998; Doyle, 1998). Also known as utilitarian and value expressive values, these attributes are the sum of the emotional and rational appeals of the brand and are developed over time and affected by consumers’ brand
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experience. Although the functional or tangible elements of the brand serve to reassure buyers that important elements of the service will be delivered as promised, the emotional or intangible elements of the brand are also deemed important (Lannon and Cooper, 1983; Goodyear, 1996). Similar to product branding strategy, branding in services marketing concerns the blending of functional and emotional values. In the context of financial services, with the characteristic lack of tangible evidence and decreasing brand differentiation, the literature proposes that emotional values are more sustainable than functional values (de Chernatony and Dall’Olmo Riley, 1999; Palmer, 2001), which are easily copied (Goodyear, 1996). It is suggested that the key to brand differentiation in financial services is through the effective management of these unique emotional values. The notion of customer evaluation of services and its associated issues has been widely discussed in the services literature (e.g. Zeithaml, 1988; Gro¨nroos, 1990, 1991; Zeithaml et al., 1990). An important distinction is drawn between the outcome (i.e. what the service is designed to achieve, or technical quality) and the process of delivery (i.e. how the service is delivered, or functional quality) (Gro¨nroos, 1984; Zeithaml et al., 1990; Berry and Parasuraman, 1991). Taking financial services as an example, these process factors, including perceptions of behaviour and attitude of staff, may be seen as more dominant consumer criteria than outcome factors such as rates or queuing. Since the traditional purchase process and consumption of financial services depends on input from both service employees and consumers (Bowen and Schneider, 1988), these process dimensions also underline the importance for the consumer of the human dimension and the role of interaction-based factors in consumer perceptions of service quality in banking. Therefore, the customer’s overall service experience very much depends on the nature of this personal interaction, which is affected by service quality (Parasuraman et al., 1985) and internal marketing (Gro¨nroos, 1994) initiatives. Brand image Since the late 1980s and early 1990s, researchers have been suggesting the importance of the symbolic aspects of services (Arnould and Price, 1993; Celsi et al., 1993). Taking a consumer’s perspective, service brand image can be defined as “attributes and functional consequences and the symbolic meanings consumers associate with a specific service” (Padgett and Allen, 1997, p. 50). Within financial services, researchers encourage companies to adopt both a consumer and a supplier perspective, blending brand identity with sets of consumer perceptions, or images (Morrall, 1995; Camp, 1996). Part of what is sold with the service is the overall stature and imagery of the organisation, and consumers tend to perceive all services offered by a company as components of a single brand: thus, the notion of individual branding does not apply (Kinsley, 1979; Berry et al., 1988). Closely related to brand image, especially for services, is the area of corporate identity, which refers to what an organisation is and stands for (Balmer, 1995, 1998, 1999). Elements associated with corporate identity, including corporate image, corporate reputation and corporate brand management, have been well documented in the financial services literature (e.g. Balmer and Stotvig, 1997; Morison, 1997; Harris, 2002). It would appear that financial service providers have not been particularly successful in developing and projecting a unique or differentiated brand positioning or identity (Camp, 1996; Debling, 1998; Romanuik, 2001). Indeed, the extent of advertising
carried out by financial service organisations is overwhelming, confusing and undifferentiated (Ries and Ries, 2003). As effective branding and brand differentiation has proved elusive in the financial services marketplace, consumers find it problematic to distinguish between main banks, reflecting the intrinsic lack of differences between them, and/or the ability of consumers to “sample” alternatives (Dall’Olmo Riley and de Chernatony, 2000). Similar to the generic marketing approach adopted by the big banks in the UK (Harris, 2002), Irish banks practice undifferentiated, monolithic marketing strategies and have relied on credential-based branding stressing their size, age and experience as a basis for brand image. Now, in the internet age, involving the “old and new economy”, it has been suggested that a more differentiated and distinctive brand image and corporate identity is essential in the financial services sector (Melewar and Navalekar, 2002) in order to create a sustainable competitive advantage (Farnfield, 1999; Melewar and Bains, 2002). One could argue that this can only be achieved through the effective use of advertising and communication imagery to build core brand values and corporate brand images which are credible and relevant to the consumer (Jones, 1999; Harris, 2002; Ries and Ries, 2003). Irish banking sector The financial services sector provides excellent examples of highly intangible, impalpable and complex service-based offerings, which vary enormously in context, use, consumption, delivery, duration and significance to the customer (Colgate and Stewart, 1998; Devlin, 1998, 2000). Options for adding value may be limited due to customer reliance on experience and credence qualities during the purchase decision (Gabbott and Hogg, 1994), and extrinsic cues such as image and reputation may be particularly important in adding value in cases where consumer understanding of service offerings is limited (Zeithaml, 1988; Andreassen and Lindestad, 1997). The Irish financial services marketplace has seen similar developments to the UK and international environments: deregulation and technological advances are among the main developments generating new competitive pressures and turbulence on both the demand and supply sides (Irish Banking Federation, 2000; Davis, 2000b; Government of Ireland, 2001). Although Irish retail banking has traditionally been significantly more concentrated than other markets (Carpenter, 1998; Government of Ireland, 2001), the new legislative environment has lowered entry barriers to the sector, blurred the business boundaries between different types of financial services, and created unprecedented competition between financial institutions. Therefore, in a marketplace comprising new entrants from non-traditional spheres, changing delivery channels and rapidly emerging new services and packages, all players in the retail banking sector have had to re-establish their most viable competitive position in terms of financial service brand management, delivery and experience. Research purpose and methodology This in-depth qualitative consumer study of Irish retail banking explored the role of functional and emotional brand values as compared with the importance of outcome and process factors central to the financial brand experience. In addition, consumers’ perspectives on the importance of brand experience as compared with projected brand image were evaluated. The research adopted a realist ontological position (Miles and Huberman, 1994; Perry et al., 1999; Carson et al., 2001).
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Following an inductive exploratory stage with managers and with consumers, a structured deductive approach (Miles and Huberman, 1994; Zaltman, 1997; Silverman, 2000) was adopted for this in-depth stage of the research. Structured personal interviews were chosen as the most appropriate means of data collection for sensitive financial issues due to their superior ability to build depth and intimacy (Denzin and Lincoln, 1994; Lincoln and Guba, 1985). This enabled the researcher to discover feelings, memories and interpretations in relation to the role and importance of branding (Carson et al., 2001). The population of the study comprised of a predominantly middle to upper socio-economic group exhibiting a range of demographic and product-related characteristics, thus facilitating a comparison across different levels of financial experience. In order to capture respondents with higher levels of financial experience, certain segments or subgroups of the population were considered particularly relevant. Therefore, a stratified purposeful sampling method was used to recruit 50 consumers representing the desired range of demographic characteristics (e.g. sex, age, profession) and product-related criteria. This sampling method was particularly useful in illustrating “particular characteristics of subgroups of interest” and allowed for comparison of differences (Patton, 1990) across financial experience within the sample. Hence, the sample was deliberately skewed to incorporate a higher proportion of middle and higher income consumers, who fell into the 30+ age category and e40,000+ income brackets – they were considered to have greater financial experience and were better equipped to discuss their financial services decisions and experiences. As shown in Table I, the age profile of the respondents ranged from 26 to 63 years, with a deliberate cut-off point of retirement age. As a stratified purposive sample, containing a middle to higher income bias, the majority of consumers were in the 30s (26 per cent), 40s (30 per cent) or 50s (22 per cent) age brackets. Income levels ranged from “lower” (, e40,000 per annum) to “middle” (e40,000-75,000 per annum) to “high” (. e75,000 per annum), which were developed from recent Irish socio-economic figures (Socio-Economic Review, 2003). As with age, the sample was comprised of a higher proportion of middle-income (42 per cent) and high-income (34 per cent) consumers. In addition, respondents in the sample varied across other demographic dimensions such as sex, profession and geographic spread. Similarly, reflecting the stratified nature of the sample, the majority of respondents were categorised in the “wide” category of product usage (50 per cent), holding a broad range of financial products including the usual core (e.g. current/deposit accounts) and routine products (e.g. credit cards) in addition to several complex products (e.g. two or more mortgages) and several investment products. Financial experience was also assessed in terms of range of relationships, i.e. the number of relationships with financial institutions held by a consumer. The majority of respondents held a “wide” range of relationships with several suppliers (48 per cent) or fell into the “medium” range (30 per cent), having dealings with three or more suppliers. Obviously, consumers in the “wide” categories of product usage and range of relationships were most financially experienced, and thus most qualified to respond and reflect deeply on financial issues. The in-depth interviews were transcribed and analysed using the computer software package NVivo, which facilitated the identification and interpretation of key themes (Bazeley and Richards, 2000; Maclaran and Catterall, 2000).
Profession
Third level teacher Secretary of department Caretaker Musician National school teacher Secretary of department Engineer Senior administrator Teacher Accountant Programme manager Project manager Primary school principal Manufacturing supervisor Academic co-ordinator Medical scientist Solicitor Hospital registrar Fire officer Facilities engineer Senior medical scientist Project manager Farmer (medium farm) Plant manager Nurse and policeman Owner, photo shop Technician Lab. supervisor HR manager
Name
Reena Brigid Jack Dave Susan Christine Ken Mary Anne Catherine Pat M. Ursula Eileen Kevin Mary Miriam James Ciara Gerry A. Bernard Gerry L. Roger Paul M. Sean Maria/Tony Jim Brendan John TJ
Lower Lower Lower Lower Lower Lower Lower Lower Lower Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle Middle
Income category 23,000 25,000 25,000 25,000 29,000 32,000 35,000 35,000 38,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 51,000 51,000 54,000 57,000 60,000 63,000 63,000 63,000 63,000 65,000
Salary (e) No No Yes No No Yes Yes Yes Yes Yes No No Yes No Yes Yes No No Yes No Yes Yes No No Yes Yes Yes Yes Yes
0 0 3 0 0 3 0 1 2 0 0 0 2 0 2 2 0 0 3 0 2 0 0 0 1 1 2 2 2
Narrow Narrow Narrow Medium Narrow Medium Medium Medium Medium Wide Medium Medium Medium Wide Medium Medium Medium Medium Wide Medium Medium Medium Wide Medium Medium Wide Wide Wide Wide
Product Age Address Married Children range
Female 30 City Female 32 City Male 55 City Male 41 City Female 25 City Female 48 City Male 26 Town Female 55 City Female 48 City Female 35 Town Male 30 City Female 35 City Female 60 Town Male 48 City Female 55 City Female 42 City Male 30 Rural Female 30 City Male 62 City Male 29 City Male 45 City Male 29 City Male 38 Rural Male 32 Town Couple 29/29 Town Male 40 City Male 47 City Male 48 City Male 55 Town
Sex
(continued)
Narrow Narrow Narrow Medium Narrow Medium Medium Medium Single Narrow Narrow Single Medium Wide Single Single Single Medium Wide Medium Medium Medium Single Medium Medium Wide Wide Medium Wide
Range of relationships
Branding in Irish retail financial services 13
Table I. Profile of interviewee attributes
Profession
Senior process engineer Accountant/manufacturing supervisor Head of language school Teacher and carpenter IT consultant Water schemes Director of facilities Bank manager Senior lecturer Pharmaceutical consultant Consultant General practitioner Medical consultant Farmer (large farm) Owner, Dry Cleaners Operations manager Company director University Professor Property owner
Lorna Angela/ Eoin Joe Ray Josephine Martin Pat O’ David Fintan George Barbara Ena Paul C. Anselm Trevor Jean Bill Patrice Eamon
Table I.
Name
High High High High High High High High High High High High High High High High High
Middle Middle
Income category Sex
76,000 76,000 76,000 82,000 82,000 þ 82,000 þ 82,000 þ 82000 þ 82,000 þ 82,000 þ 82,000 þ 82,000 þ 82,000 þ 125,000 þ 125,000 þ 125,000 þ 125,000 þ
Male Male Female Male Male Male Male Male Female Female Male Male Male Male Male Female Male
47 55 48 53 45 63 45 58 43 63 38 60 55 45 50 55 55
City City Town Town Town Rural City Rural City Rural City Rural City City Rural City City
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yes Yes 2 2 0 4 2 5 2 3 1 6 2 3 5 3 2 3 3
0 1
Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide Wide
Medium Medium
Product Age Address Married Children range
65,000 Female 35 Town 70,000(J) Couple 31/33 Town
Salary (e)
Wide Wide Wide Wide Wide Wide Wide Medium Single Narrow Medium Wide Wide Wide Wide Wide Wide
Wide Narrow
Range of relationships
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Discussion of results Functional and emotional values The relative importance of functional as compared with emotional brand values of financial service providers was explored in depth with respondents. Functional attributes were identified on the basis of those that satisfy rational, practical (Bhat and Reddy, 1998) or externally generated needs (Park et al., 1986) and capture the consumer’s concern for the performance of the product (de Chernatony and McWilliam, 1989) with tangible or utilitarian benefits. Emotional attributes were categorised on the basis of their ability to satisfy intangible dimensions or emotional needs (Bhat and Reddy, 1998) and reflect values which enable consumers to express something about themselves and their lifestyle (Park et al., 1986) or meet consumers’ symbolic needs for self enhancement or prestige (de Chernatony and McWilliam, 1989). When probed, respondents identified a number of values or attributes which they deemed to be important when evaluating between financial brands. Table II presents the key values identified by respondents across a continuum from functional to emotional and the corresponding number of informants who cited these values. Importantly, although most values fell into the functional or emotional category, a number represented both a functional and emotional dimension and therefore were classified in the middle column, reflecting the researchers’ view that some values comprise both functional and emotional dimensions. Second, although identified by consumers as important brand attributes, some values were discussed in a negative manner and many consumers alluded to the lack of competitiveness, poor advice and lack of flexibility or efficiency of financial service providers. Functional values appeared to be far more numerous and salient than emotional values, with competitiveness, advice and expertise, customer service, flexibility, accessibility, efficiency and innovativeness emerging as key in discussions. Cited by all 50 respondents, competitiveness related to bank interest rates and charges, of which the former were considered to be the most important issue associated with financial products, as illustrated by Brigid’s comment:
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The rates would be number one I would say. At the end of the day I suppose basically it’s the rate that is important, what one bank can offer compared to the next bank. If you go into TSB and they offer you something and then you come down the road to EBS and they can offer Functional values Competitiveness Size Advice and expertise Customer service Flexibility Accessibility Efficiency Innovativeness
Number of informants
Combined functional Number of and emotional values informants
Emotional values
Number of informants
50 45
Security and stability Familiarity
Friendliness Caring and helpful
17 6
44
Longevity
36 27 17 16 3
28 7 6
Courtesy Comfort feeling Understanding
5 4 2 Table II. Functional and emotional values (n ¼ 50)
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you better, you would go back to TSB and say can you match this and they say they can’t match this well then you go back to the EBS (Brigid, 32, Secretary).
Although Brigid is a respondent in the lower-income category, she is typical of a growing number of consumers who recognise that they are in a position to play one institution off against another in order to obtain the best rate. Similarly, interest rates remain key for high-income customers, representing a criterion that is considered “bottom-line” to all decisions. On the other hand, although recognised as a primary functional brand value, banks appeared to be failing to differentiate themselves across rates, and consumers perceived little evidence of real competitiveness between financial providers. Size and its associated elements, including branch network, range of services and physical presence, represented a functional value of high importance to the majority of respondents and a key proxy or substitute for branding in relation to financial services. Indeed, for some respondents, size was an important signal of other combined functional and emotional values. Being with a big bank held direct associations not only with feelings of “security” but also “longevity” and “familiarity”, as the majority of these larger institutions were seen to be established a long time and more familiar. While advice and expertise emerged as an important functional value, the majority highlighted that it was “poor quality” and that they did not “trust” their bank for advice, considering it to be “unreliable”. Many informants raised the issue of the poor quality of advice received, stating that they did not “trust” the bank for advice and did not feel the advice they had taken in the past was reliable or in their best interests. The following quote from Bernard illustrates this distrust: The attitude with the current banking situation is that they don’t give a damn . . . with investments . . . I would say no I wasn’t happy with any advice I was given; it hasn’t given me returns that I was expecting. They don’t give you fair comparisons . . . (Bernard, 29, facilities engineer).
This dissatisfaction with advice appeared to be based on inaccurate or “misleading” information on projected returns and a general lack of openness and transparency regarding the performance of the bank’s products and services. Although there was overall dissatisfaction with the quality and approach to advice giving by the bank, it is clear that good quality advice and financial expertise was regarded by consumers as one of the key functional values of financial providers. Additional functional values cited included criteria such as customer service, flexibility, accessibility, efficiency and innovativeness. Although functional values emerged as far more numerous and salient than emotional values, the majority of informants believed that banks did not generally “rate” or perform well on these functional values. While, as noted above, the importance of emotional values has been highlighted by some researchers in the literature, respondents did not consider emotional values of financial services brands as being as important as functional values. Emotional values such as friendliness, care and helpfulness of staff, and courtesy were identified as important by some respondents, as illustrated by the following quote: The only reason why I liked AIB I suppose I know the personnel and I get very personal attention in there and that to me is important (Ena, 63, general practitioner).
Ena is typical of a smaller number of older, predominantly female customers who highly value the “personal touch”, “courtesy” and the emotional side to banking.
Similarly, friendliness was perceived by these older female respondents as more important than all other factors, and some indicated that they would “not want to stay” with their bank if the friendliness and helpfulness disappeared. However, although the emotional values of friendliness and helpfulness were desired by some, functional values such as consistent and efficient service were deemed to more important, as explained by Fintan: We would prefer someone friendly obviously, but again if it’s efficient and they do it right and they’re not ignoring you. Neutral is perfectly okay. Negative or dismissive is not. Friendliness is nice but efficiency and good service is very important (Fintan, 45, senior lecturer).
Indeed, the majority of customers appear to be satisfied with a neutral if professional approach from their bank, whereas only a minority of customers desire a very friendly personable approach by staff. Obviously, there was general agreement that an unfriendly approach or manner was highly undesirable. Although emotional values associated with being a “caring, friendly” bank were deemed to be very important by some, a large number of respondents perceived these emotional values as something that is “nice” but not “necessary” to have in banking. Determining positive brand experience: outcome versus process factors Building on the previous discussion of financial brand evaluation through functional and emotional values, financial services experiences could be explored through an assessment of the perceived quality of the service and brand experience. The notion of brand experience, i.e. the consumer’s personal overall experience of the brand, emerged as particularly salient in determining customer satisfaction. Indeed, a large number of informants were unable to comment on the bank’s brand values or image and reverted to discussing their personal experiences of using the bank. The extensive consumer research unveiled many service quality issues, which were further explored through an application of the outcome versus process framework (Zeithaml et al., 1990). Despite increasing levels of automation, the financial services sector was perceived by many consumers as highly interactive and process-driven, and positive associations appeared to lead from the “process” or the service experience itself as opposed to from the “outcome” of the service experience. While obtaining a reliable outcome (e.g. approval for a loan or mortgage) was considered salient by respondents in financial services evaluation, it appeared that process components relating to the dimensions of assurance, responsiveness and empathy were far more important in building a positive brand experience and lasting brand perceptions. Specifically, where “professionalism” and “good advice” were perceived, these were key to building feelings of trust, confidence and assurance in the financial service provider. In terms of responsiveness, respondents highlighted the importance of “superior service”, “flexibility”, and “efficiency”. In relation to empathy, respondents underlined the importance of “understanding”, “sympathy” and “friendliness” as key in empathising with customer issues in a personable, friendly fashion. Significantly, the credit unions, which are similar to the Cooperative Bank in the UK, were seen as unique in being more community-based, flexible and personal than the main banks. The following quote by Jim illustrates this: It’s the personal touch, they know everybody that is coming in so in that sense it is a very personal service, they know if you have a problem with your job or you have three kids, or
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your wages are not good enough, so they are that more sympathetic to your needs than the others (Jim, 40, photo shop owner).
As a whole, credit unions were perceived to be “community orientated”, dedicated to offering flexible loans and services in addition to supporting and servicing lower-income groups of society. As such they represent one of the few financial institutions that places significant emphasis on the process dimensions of servicing customers, thereby successfully exceeding customer expectations and building positive brand experience. As shown in Figure 1, the most positive brand experience in financial services was related to both “outcome” and particularly “process” factors. Applying these findings to existing outcome and process theory (Zeithaml et al., 1990; Berry and Parasuraman, 1991), through delivering on both outcome and, importantly, process factors, positive brand experience in financial services can be achieved. Moreover, associations of assurance, responsiveness and empathy, leading to customer trust, satisfaction and loyalty (Gabbott and Hogg, 1998) can be facilitated. Hence, customer expectations will not only be “met” in a means-to-end approach, but can be exceeded and superior brand experience achieved. Regrettably, many customers believed that banks placed little or no priority on these all-important “service” or process factors. The negative outcome-driven approach adopted by many financial institutions has resulted in customer expectations not being met. This, is turn, has created high levels of customer dissatisfaction and generated a strong customer desire to switch to an alternative supplier who adopts a process-focused approach. Brand image versus brand experience: expectations versus experience The third branding-related theme centred on a comparison between customer expectations of financial services, built through marketing communications, and their experience with using the brand. Building on the previous discussion of the importance of process as compared with outcome factors in building a positive brand experience, the research findings highlight that incongruence exists between expectations, created through projected brand image and the actual experience of consumers using the
Figure 1. Outcome/process factors and brand experience
financial services brand. This dichotomy has in turn resulted in some customers lowering their expectations of financial service providers. In addition, a generally negative view of financial service providers prevails, built on poor perceptions and experience of bank policies and practices, resulting in customer dissatisfaction. Moreover, it appears that marketing communication and advertising campaigns by financial service providers have not succeeded in neutralising or reducing this negative reputation. Consequently, customers continue to remain unaware of or are uninterested in financial services advertising, due to a generally low level of importance, interest, consumer involvement, or pure credibility. Consequently, many are cynical and dismissive of their brand image and brand building messages. The concept of corporate reputation (Abratt, 1989; Weigelt and Camerer, 1988; Randall, 2000), in relation to banks and building societies emerged in discussions as an issue that generated a high degree of reflection and dialogue. Perhaps the most significant revelation was that the reputation of financial institutions was only discussed in negative terms. Specifically, this negative reputation was based on a number of financial services policies and practices including recent cost-cutting activities, increasing bank charges and internal scandals. Many respondents highlighted an overriding feeling of cynicism regarding the banks’ “obscene” profit-making policies, “exorbitant” charges and cost-cutting practices in relation to personnel and branches. In addition, a number of recent money laundering, tax and embezzlement scandals were associated with “the big banks” such as Bank of Ireland and Allied Irish Bank, raising questions about the credibility and trustworthiness of these bigger institutions, as highlighted by Dave: I would have said the scandals with AIB and the involvement with over-charging as well. I think those kind of images would have lowered the banks’ credibility for me (Dave, 41, musician).
Overall, although traditionally used by consumers as a key credence cue for financial services (Zeithaml, 1981), the “reputation” of Irish banks was perceived by respondents to be predominantly negative. Rather than being attributed with a credible and trusting reputation, respondents associated only negative aspects with the reputation of banks, including low credibility and perceptions of ruthlessness and opportunism. Associated with the concept of reputation or public perception of banks is brand image, which is related to the communicated messages, images or associations projected by financial providers through marketing communication and advertising campaigns (e.g. Morrall, 1995; Camp, 1996; Padgett and Allen, 1997). Specific questions were asked regarding the image that financial institutions project to their customers and to the public in general. Informants were asked if they were aware of or were able to recall any specific advertising broadcast by their own or other banks in the market. In terms of advertising awareness and recall, 30 of the 50 informants stated clearly that they took little or no notice of the advertising of financial suppliers, and advertising appeared to have no relevance for the majority of respondents. Phrases like “I don’t pay any heed to advertising”, “ I don’t pay any attention to their ads” and “It’s not relevant” were used to reflect the marked lack of impact of marketing communications by financial services on their customer base. In addition, some informants associated advertised image with “reputation” and reverted back to discussing the negative press surrounding the recent scandals in the big banks. A small number of informants was
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able to recall various product-level promotions and special offers on specific financial products (e.g. car loans, insurance and investments). In terms of corporate level advertising (e.g. Winters, 1986; Haley, 1996; Biehal and Sheinin, 1998), due to a low level of customer involvement (Krugman, 1965), many informants had great difficulty recalling or describing corporate brand associations or images. For many respondents, the general consensus was that they “really didn’t think about it” and were unable to offer any concrete insights or reflections on the type of image projected by their bank or the nature of the advertising it engages in. This signifies the lack of relevance or effectiveness of existing brand image or advertising initiatives on customer decisions or perceptions. Indeed, the image-based attributes associated with the main banks were scarce, and were perceived to be mostly generic in nature. This is supported in the literature (e.g. Wilkinson and Balmer, 1996; Morison, 1997), which highlights that the majority of corporate identity programmes are monolithic and highly generic. In relation to financial service providers in general, it is clear that advertising-based brand image has had little or no impact on consumers, like Jean, in relation to their perceptions or decision making: I am probably not unduly influenced by anyone’s advertising in that I just regard them all as the same, behind it all one has a better advertising company than the other so I’m not unduly concerned (Jean, 45, operations manager).
Indeed, the general lack of brand differentiation that exists between financial service providers was once again underlined in terms of the similarity of their “generic” brand image and advertising campaigns and their lack of consumer relevance and impact. By comparison, the importance of brand experience, i.e. consumers’ personal experience and the experience of others (word of mouth (WOM) and referrals), was highlighted by all respondents. Specifically, many consumers emphasised the key influence of general WOM and referrals from colleagues and friends in comparison to relying on financial services marketing communications and brand-building campaigns. This is also reflected by the majority of other respondents who highlighted the importance of their own “personal experience” or the experience of others, communicated through WOM, when evaluating between financial service providers. Therefore, when directly compared with advertising initiatives, brand experience and WOM were projected as being far more salient by many respondents. In terms of congruence between expectations and brand experience or expectations and perceptions (e.g. Zeithaml et al., 1990), there was considerable discussion and interest. A general feeling of cynicism and bitterness stemming from the perceived incongruence between projected image and “reality” or between brand identity and reputation (de Chernatony, 1999) existed among the majority of respondents. Specific grievances relating to increased restriction on services and lack of customer orientation were voiced, as illustrated by Bill’s comment: The Bank of Ireland now don’t allow you to pay bills . . . there are some Bank of Ireland ATM machines you can’t use a AIB banklink card in it . . . so that’s not friendly banking in this day and age of modern technology. That’s very restrictive, so I don’t think the banks live up to what they advertise (Bill, 50, company director).
Therefore, this perceived difference between a glossy communicated image and actual brand experience (i.e. between expectations and perceptions) resulted in people feeling that banks have a “two-faced image” and has led to some consumers lowering their
expectations accordingly in order to avoid further disappointment, as unserlined by Angela’s statement: I think if your expectations aren’t too high then you are okay (Angela, 31, accountant).
Angela’s short comment reflects the sense of bitter complacency that ultimately develops from continued disappointment and dissatisfaction in relation to her bank, which is created through the growing gap between expectations (brand image) and perceptions (brand experience). Conclusions It is evident from these brand-related discussions that branding is used selectively by consumers in terms of financial evaluation, decision making and behaviour. Contrary to the literature, functional values such as competitiveness, size and advice are perceived to be more salient than emotional values in consumer decision-making. Although comparatively more important to consumers than emotional values, many banks appear to be performing poorly on these important functional dimensions. Despite the consumer importance and saliency attached to functional values, many financial service providers emphasise representational values in their marketing communications to appeal to consumers on an emotional level. One can conclude that complex emotive messages and emotional brand values projected by financial suppliers to connect and engage with customers do not appear to be necessary or welcomed. Given the consumer importance and relevance of functional brand values, it is recommended that financial services providers design brand appeals and advertising messages that are targeted at consumers’ functional financial needs. Despite the importance of functional values, there appears to be an increasing lack of differentiation in financial services, particularly in terms of values such as rates and range of services. Through leveraging and delivering on the process dimensions of assurance, responsiveness and empathy, positive brand experience and real brand differentiation in an increasingly generic sector can be facilitated and achieved. The findings show that the primary way by which consumers can perceive added value and differentiation between financial service brands is through people-based “process” factors such as advice and expertise, service quality, customer orientation, flexibility and efficiency. In an era of increasing financial brand commodification, heightened consumer scepticism and switching, we suggest that superior brand experience could be achieved through a successful integrated strategy of meeting customer functional brand needs in an outcome-driven approach and exceeding customer expectations within a process-driven service experience. The research findings relating to brand image highlight the marked lack of awareness, recall and relevance or meaning of advertising-based image building initiatives to consumers. Consequently, many financial service organisations have enjoyed limited success in projecting a genuine corporate identity or brand image. By comparison, brand experience was deemed by customers to be far more salient in creating lasting brand perceptions and customer satisfaction. However, customer experiences with financial services brands were perceived by informants as inconsistent and largely negative and were far removed from the image projected by the bank. Moreover, due to customer cynicism as a result of brand image and brand experience incongruence, in addition to increasing lack of differentiation between service providers, customers have lowered their expectations and continue to attach
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less and less importance to financial service branding or communicated brand images and associations. Consequently, customer expectations of financial service providers remain dismally low and an overall cynical view and reputation prevails that banking is “a necessary evil”. To summarise, while it may be argued that brand building is imperative in the highly competitive arena of financial services, the creation of solid core brand benefits is no longer sufficient to carve a competitive advantage in the face of intense competition and the increasing deregulation in the financial services market (Debling, 1998; Harris, 2002). Although service branding can be closely aligned to product branding principles, its application differs in many respects (Berry, 2000), and it is imperative that a multidimensional financial services brand, particularly along meaningful functional values and process-driven factors is developed. Limitations and future research directions While the qualitative research literature (e.g. Kirk and Miller, 1986; Cresswell, 1994; Carson et al., 2001) proposes that qualitative research in general is reliable, valid and trustworthy, the authors were particularly mindful of the reliability, validity and generalisability issues commonly associated with drawing conclusions and generating implications from non-probabilistic, small samples (Patton, 1990; Bock and Sargeant, 2002). Following Patton (1990), stratified purposive sampling was selected to fit the purpose of the study and the nature of the research question (Patton, 1990). Based on Tsoukas (1989) and Cresswell (1994), the notion of reliability was approached as “replicability” of the data, and internal validity (which is particularly key to qualitative research) was viewed as the accuracy of the data collected and its degree of correspondence to reality. In addition, the “trustworthiness” of the qualitative findings was facilitated through the careful assessment of appropriate literature, justification of the appropriateness of qualitative research methodologies employed, and structuring of data analysis to ensure full and descriptive evaluation and assessment (Carson et al., 2001). Hence, the internal validity or generalisability of the qualitative findings and conclusions to the Irish financial services population, albeit based on small sample sizes using purposive sampling techniques, was maximised. However, further in-depth qualitative and/or quantitative studies need to be conducted with larger sample sizes to address issues in terms of making inferences and generalisations from the research. Moreover, this study was conducted in an Irish context and unveiled findings in relation to branding issues, which are likely to have some degree of cultural bias. Therefore, the strong inherent cultural aspect of the study could pose difficulties in generalising the key findings, conclusions and recommendations to other financial services markets and cultures, and the external validity of the study may be limited (Gill and Johnson, 1991; Cresswell, 1994; Yin, 1994). Hence, further research is necessary to investigate the strength of this underlying cultural effect, and comparative analysis should be conducted with other similar financial markets (e.g. the UK, Europe and the USA) to ascertain the extent to which Irish consumers are unique or similar in respect to their brand-based preferences and decisions. References Abratt, R. (1989), “A new approach to the corporate image management process”, Journal of Marketing Management, Vol. 5 No. 1, pp. 63-76. Andreassen, T. and Lindestad, B. (1997), “Customer loyalty and complex services”, International Journal of Service Industry Management, Vol. 9 No. 1, pp. 7-23.
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Palmer, A. (2001), Principles of Services Marketing, 3rd ed., McGraw-Hill, London. Parasuraman, A., Zeithaml, V. and Berry, L. (1985), “A conceptual model of service quality and its implications for future research”, Journal of Marketing, Vol. 45 No. 3, pp. 41-50. Park, C.W., Jaworski, B.J. and MacInnis, D.J. (1986), “Strategic brand concept-image management”, Journal of Marketing, Vol. 50 No. 4, pp. 135-45. Patton, M.Q. (1990), Qualitative Evaluation of Research Methods, 2nd ed., Sage Publications, Newbury Park, CA. Perry, C., Riege, A. and Brown, L. (1999), “Realism’s role among scientific paradigms in marketing research”, Irish Marketing Review, Vol. 12 No. 2, pp. 16-23. Randall, G. (2000), Branding: A Practical Guide to Planning Your Strategy, 2nd ed., Kogan Page, London. Ries, A. and Ries, L. (2003), “Financial planning has a HR problem”, Journal of Financial Planning, February, pp. 16-18. Romanuik, J. (2001), “Brand positioning in financial services: a longitudinal test of find the best brand position”, Journal of Financial Services Marketing, Vol. 6 No. 2, pp. 111-21. Sheppard, A. (1994), “Adding brand value”, in Stobart, P. (Ed.), Brand Power, Macmillan/ Interbrand Group, London, pp. 85-102. Silverman, D. (2000), Doing Qualitative Research: A Practical Handbook, Sage Publications, London. Socio-Economic Review (2003), “Achieving inclusion, policies to ensure economic development, social equity and sustainability”, CORI Justice Commission, March, available at: http:// econserv2.bess.tcd.ie/malawles/CORI_ase_review03.pdf Streiter, J., Gupta, A., Raj, S.P. and Wilemon, D. (1999), “Product management and the marketing of financial services”, International Journal of Bank Marketing, Vol. 17 No. 7, pp. 342-54. Tsoukas, H. (1989), “The validity of ideographic research explanations”, Academy of Management Review, Vol. 2 No. 4, pp. 551-61. Van Riel, A., Lemmick, J. and Ouwersloot, H. (2001), “Consumer evaluations of service brand extensions”, Journal of Service Research, Vol. 3 No. 3, pp. 220-31. Weigelt, K. and Camerer, C. (1988), “Reputation and corporate strategy: a review of recent theory and applications”, Strategic Management Journal, Vol. 9 No. 5, pp. 443-54. Wilkinson, A. and Balmer, J.M. (1996), “Corporate and generic identities: lessons from the Cooperative Bank”, International Journal of Bank Marketing, Vol. 14 No. 4, pp. 22-35. Winters, L.C. (1986), “The effect of brand advertising on company image: implications for corporate advertising”, Journal of Advertising Research, Vol. 26 No. 2, pp. 54-9. Yin, R.K. (1994), Case Study Research: Design and Methods, 2nd ed., Applied Social Research Methods Series, Vol. 5, Sage Publications, London. Zaltman, G. (1997), “Rethinking market research, putting people back”, Journal of Marketing Research, Vol. 34 No. 4, pp. 424-37. Zeithaml, V.A. (1981), “How consumer evaluation processes differ between goods and services”, in Donnelly, J.H. and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL. Zeithaml, V.A. (1988), “Consumers’ perceptions of price, quality and value: a means-end model and synthesis of evidence”, Journal of Marketing, Vol. 52 No. 3, pp. 2-22. Zeithaml, V., Parasuraman, A. and Berry, L.L. (1990), Delivering Service Quality: Balancing Consumer Perceptions and Expectations, Free Press, New York, NY.
Further reading de Chernatony, L. (2001), From Brand Vision to Brand Evaluation, Butterworth-Heinemann, Oxford. de Chernatony, L. and Dall’Olmo Riley, F. (1998), “Defining a ‘brand’: beyond the literature with experts’ interpretations”, Journal of Marketing Management, Vol. 14 No. 4/5, pp. 417-43. de Chernatony, L., Harris, F. and Dall’Olmo, Riley, F. (2000), “Added value: its nature, roles and sustainability”, European Journal of Marketing, Vol. 34 No. 1/2, pp. 39-56. de Chernatony, L., Segal-Horn, S. and Khan, S. (2001), “Service brand building through understanding the differences between services brands and product brands”, Proceedings of the Academy of Marketing Conference, Cardiff, 2-5 July. King, S. (1991), “Brand building in the 1990s”, Journal of Consumer Marketing, Vol. 8 No. 4, pp. 43-52. Thompson, K., de Chernatony, L., Arganbright, L. and Khan, S. (1999), “The buy-in benchmark: how staff understanding and commitment impact brand and business performance”, Journal of Marketing Management, Vol. 15 No. 8, pp. 819-35. Wright, A. (2002), “Technology as an enabler of the global branding of retail financial services”, Journal of International Marketing, Vol. 10 No. 2, pp. 83-98.
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The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister
IJBM 23,1
Re-engineering service quality process mapping: e-banking process
28 Received February 2004 Revised July 2004 Accepted August 2004
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 28-53 q Emerald Group Publishing Limited 0265-2323 DOI 10.1108/02652320510577357
The current issue and full text archive of this journal is available at www.emeraldinsight.com/0265-2323.htm
Raphae¨l K. Akamavi The Hull University Business School, Hull, UK Abstract Purpose – The paper examines a financial service innovation process, which is referred to as financial product innovation: improvements to existing services. This study conducts a critical analysis of the operational process of opening a Lloyds TSB Student Account at a local branch. Design/methodology/approach – The process of opening a student bank account is documented in a flowchart/flow network, which highlights operational steps and the visibility line between front-end and backroom staff. This process mapping technique/flowchart allows for the diagnosis and identification of both potential and actual bottlenecks in the existing process, which prevented a quality service encounter for the customer. After outlining these problematic areas/non-value added activities, the adopted qualitative triangulated methodological approach yields a redesigned flowchart illustrating these changes. Furthermore, this paper proposes a re-engineered process (i.e. e-process or virtual process), which removes these bottlenecks systematically. Findings – The results show the increased efficiency, productivity and customer satisfaction levels that are the key to innovation process performance. The study concludes with evidence of non-financial performance results of this type of financial service innovation. Research limitations/implications – The study does not quantify the performance of e-process operations, and it does not examine customer concerns related to complexity, trust security and safety issues. However, it provides useful managerial recommendations for improving the process of opening a student account. Numerous key learning points and invaluable insights gathered during this project are practical contributions both to managers involved in innovation process and researchers interested in this domain. Practical implications – This paper provides a re-engineered process which is simpler, more economical and faster than the original process. It presents principles to diagnose appropriate service operation processes for re-engineering using action mapping programmes and review their innovation performances. Managers will learn new frameworks, diagnostic tools and analysis techniques to better understand and improve their firm’s service operations. This study is designed to give service innovation managers and e-marketers instantaneous and continuous improvement in the quality of their e-service designs. Originality/value – One of its contributions lies in increasing the ability of managers to improve their knowledge and skills for responding to the e-service innovation process. It adds to the growing literature on the innovation process for financial services. While the study answers a number of salient questions, it also produces a stimulus for further investigation of service innovation through the provision of future research directions in this area. Keywords Financial services, Innovation, Flowcharts, Process planning, Customer services quality, Virtual banking Paper type Research paper
Introduction Retail banks are under tremendous pressure of competition from other financial institutions, new entrants/newcomers and non-financial financial firms (e.g. Tesco plc,
Sainsbury plc, Virgin, Marks & Spencer plc, etc.), and from the rapid growth of information and communication technologies (ICTs) and unpredictable market dynamism (Watkins and Wright, 1987; Mullineux, 1987; Nellis and Lockhart, 1995; de Ruyter et al., 1998). Therefore, they are constantly seeking new markets and new financial products, and new ways to increase their market shares and to improve their operational processes. Thus, retail banks are targeting young people, mainly students opening accounts with their grant cheques, and persuading them to continue banking after graduation. This is well documented in Lewis (1982), Lewis and Bingham (1991), Kara et al. (1994), Goode and Moutinho (1995), Colgate et al. (1996) and Mintel (1999, 2000, 2001). Despite this increased emphasis on student banking services and the increasing rate student population, the financial services marketing literature provides little insight into the process of opening a student account (OSA). Therefore, this study examines the process of OSA activities. Thus, it aims to gain a better understanding of the re-engineering service quality process map of a local Lloyds TSB branch. The paper reviews previous works related to the concept of process. It presents a pragmatic examination of the magnitude of service process and its influence on service quality. A pressing question remains partially unanswered: how a process can be analysed for its relative transparency and efficiency is one of the priorities in balancing productivity and quality issues. To analyse the translucent effectiveness and efficiency of the OSA process, this paper adopts a case study approach to investigate the key dimensions of the OSA process in a local branch of Lloyds TSB Bank. This study presents alternative frameworks that are practically superior to the one adopted by Lloyds TSB. Finally, the paper concludes with managerial and academic implications, followed by areas for future research. Background of the current study There is a rich body of literature indicating the concept of process when analysing the transparency and efficiency of an operational process (Levitt, 1972; Chase, 1981; Shostack, 1984, 1987). The banking process of OSA may be defined as a series of steps/stages which converts inputs into an identifiable output intended for internal and external customers. Childe et al. (1994) argued that a business process operates in a way analogous to a system which comprises a series of continuous actions or operations performed at different stages. Furthermore, Deming (1982) revealed that a diagram of any process will divide the work into the stages which form a process. These stages are interdependent entities. However, the final stage will send the service offering to the ultimate customer. Every activity is a part of a process framework. There are many existing frameworks for increasing firm performance, presented under the umbrella of blueprints (Shostack, 1984, 1987; Shapiro, 2002); process analysis (Graham, 1995; Boaden and Zolkiewski, 1998); total cycle time compression pipeline (Towill, 2001), process control (Jones and Dent, 1994), process improvement (Harrington, 1992; Pulat, 1994; Zairi and Hutton, 1995; Povey, 1998); process redesign (Ferguson, 1990; Kaplan and Murdock, 1993) and business process re-engineering (Hammer, 1990; Davenport and Short, 1990; Maull and Childe, 1994; Zairi and Leonard, 1994; Borja et al., 2000). Previous studies provide different methodologies related to inefficiency in the operational process which is due to incorrect design or to poor performance (Deming, 1982; Harrington, 1992; Hammer and Champy, 1993; Mukhopadhyay et al., 1997; Shin and Jemella, 2002). Ho and Case (1994)
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reviewed the literature for 1981-1991 on process optimisation using economic design of control charts. However, despite broad interest in the subject, there is still a lack of tools to support an operational process of OSA in the financial services sector. In this light, the current study is mainly concerned with the operational flowchart/blueprint for opening a student account. Therefore, this paper will demonstrate an approach to a flow mapping process which highlights steps and provides a basis of evaluating how effectively it contributes to the achievement of service quality in the financial services sector. Shapiro (2002, p. ix) defines a blueprint as a “capability” which is combination of people and technology that together deliver targeted service quality performance. The re-engineered blueprint can be viewed as a process innovation of service delivery which is related to financial product development in the context of financial product augmentation, repositioning and cost reduction (Hammer and Champy, 1993; Johne and Storey, 1998; Chrone´er, 2003). Financial product development has often been the result of a process innovation (Agnihothri et al., 2002; Roberts and Amit, 2003). Innovation in the service domain includes changes in the features of service itself (de Jong and Vermeulen, 2003). One example of service innovation is connected with changes in delivery method, which leads to re-engineering of the operational process (i.e. product development). Johne and Storey (1998, p. 190) refer to this type of product development as “re-engineering efforts” which improve the performance (e.g. speed of delivery, customer time reduction, responsiveness to customer, convenience) and introduce new working practices (e.g. new technology). Therefore, the process innovation of financial product development focuses on new offers rather than new financial products (Johne and Pavlidis, 1996; Veryzer, 1998; Johne, 1999; Sundbo, 1998; Zineldin, 2000). A number of authors have contributed to the thematic typology of the new product development debate (see, for example, Booz, Allen and Hamilton, 1982; Heany, 1983; Lovelock, 1984; Ansoff, 1987; de Brentani, 1989; Wheelwright and Clark, 1992; Drew, 1994; Johne and Storey, 1998; Cumming, 1998; Journal of Product Innovation Management, 1998; Cooper and Edgett, 1999; Avlonitis et al., 2001; Garcia and Calantone, 2002; van der Aa and Elfring, 2002; Gounaris et al., 2003; Akamavi, 2005). Gounaris et al. (2003, p. 267) state that “potential users cannot compare the new offerings with something similar in the market, and they are often are unable to envision the potential entailed in a highly innovative new offering”. Kapoulas et al. (2002) reveal that customers find the process innovation/e-process (e.g. e-banking process) of their service providers difficult to assess. Mattila et al. (2003) argue that a group of consumers (e.g. laggards) has negative technology attitudes and never adopts internet banking. Black et al. (2002) also suggest a similar point, i.e. that there is a segment of consumers who probably have access to the internet but do not use it for online banking operations. They go on to echo that “lack of familiarity and experience lead to higher perceptions of risk with the internet when compared with other channels” (p. 169). E-banking consumers can be classified according to the degree of risk perceived. Daniel (1999, p. 74) points out that “at present [. . .] our knowledge of the extent to which e-banking services are developed and deployed is limited and there is a very little systematic research”. Therefore, there is a need to investigate this phenomenon of mapping the process innovation, which is under-explored. Thus, this study focuses on flowcharting the blueprint.
The flow mapping/flowcharting method can be one of the simplest ways to analyse problems visually as well as to detail other parts of a process or an entire process. It provides valuable insights about how to optimise operational performance in terms of quality, cost and time (Soliman, 1998; Fu¨lscher and Powell, 1999; Biazzo, 2000; Cotoia and Johnson, 2001). It also enhances the customer’s encounter with the process, identifies bottlenecks, unnecessary deeds, delays and duplications, assists in eliminating non-value-added protocols, and reduces the intricacy of the process. Therefore, this study capitalises on operational service quality, concurrently reducing cost and time, but achievement of targets is also greater. The flow mapping process is helpful for this objective when it is brought into line with a more detailed narrative explanation of main the elements. Consequently, mapping of the process is performed in order to gain a clear understanding of how and why the process operates the way it does. Thus, the next section outlines the research aims and objectives guiding the study. Research aims and objectives The aim of this research was to conduct a critical analysis of the operational process of opening a Lloyds TSB student account. The specific objectives of the study were: . to provide a brief introduction to Lloyds TSB Bank; . to identify the key characteristics of the service operation in terms of offering the service to the market; . to develop a service quality process map (also known as a flowchart/flow network or blueprint) to depict the operational process steps, representing both consumer and business perspectives; . to identify and express clearly diagrammatically problem areas regarding service delivery; and . to devise creative and fully justified solutions that address problems identified: these are illustrated in a revised service quality process map to present opportunities for a future research direction. These broad objectives provide the overall framework for the research. Analysis of the process will identify problems that exist within the present process that must be eliminated in the alternative frameworks proposed. In order to achieve the above aims and objectives, the next section discusses the methodology adopted. To complement the literature review, a case study research project was adopted to provide in-depth insight into the different stages of the OSA process. Research methodology The aim of this section is to explain the research methodology undertaken to provide sufficient information to enable estimation of the reliability and validity of the author’s findings. Four trained students, who were supervised by the authors, collected the data. A case study approach was employed to examine the development of the specific OSA process. The qualitative investigation of a specific operational process through its development presents the opportunity to take a more grounded approach (Glasser and Strauss, 1967; Campbell, 1975; Eisenhardt, 1989; Corbin and Strauss, 1990; Cassell and
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Symon, 1994). This approach fits the real world of mapping a banking business process. The basic rationale for the case study approach is to assemble information as comprehensively and systematically as possible about the selected case organisation. One of the most important sources of case study information is the interview (Yin, 1994). However, a major strength of case study data collection is the opportunity to use many different sources of evidence (Gross et al., 1971). The strengths of this approach are its ability to provide rich descriptive detail, conveying a feeling of what it is like to experience an organisation, event or problem from the inside (Clegg et al., 1985). Additionally, it allows for the discovery of grounded theory (Corbin and Strauss, 1990; Robson, 1993), and the comparison of existing literature and theory with what actually happens in reality (Partington, 2000). Therefore, any finding is likely to be more accurate if it is based on several different sources of information (Yin, 1994). There are several techniques available in case studies that allow for the validity and reliability of the research to be verified. Below are detailed the three methodological phases which were devised to acquire the necessary understanding for this study, and which were required to address the “objectives” in a systematic manner: . phase 1 – secondary research: background information (e.g. company reports, web site, Mintel reports); . phase 2 – primary research: exploratory interviews of bank staff (i.e. five mangers of five different branches, three front-line and two back-room employees); and . phase 3 – primary research: process observation and interviews with the study site manager. Phase 1 – secondary research The primary purpose of this phase was to address the “terms of reference”, reiterated below: . to provide a brief introduction to Lloyds TSB Bank, and to the Lloyds TSB student account; and . to identify the key characteristics of the service in terms of offering the service to the market. This exercise assisted the author’s understanding of the service product, which facilitated the identification of potential faults from the actual process, and opportunities in the form of solutions using flowcharts. In addition, by highlighting the service characteristics, valuable marketing insights were established that sparked off a holistic approach to the analysis, culminating in a re-engineering of the service process. Phase 2 – primary research: interviews with bank managers In order to explore the research question and objectives further, semi-structured interviews were held with five local bank managers. Further, various junior members of staff were also interviewed. This provided an ideal opportunity to add more depth and additional insight for the development of the service quality process maps. Bank managers were chosen as suitable respondents for the interviews because of their
multiple responsibilities (e.g. branch operations and administration, supervision and human resources, and, to a greater or lesser extent, merchandising and marketing). In addition, bank managers interact directly with customers, making them customer contact workers as well as supervisors. Thus, the roles of these bank managers have critical strategic implications for operations, marketing and human resources management in addition to their impact on customer perceptions of service quality (Weatherly and Tansik, 1993). However, the constraints imposed on the study by time and cost considerations did not allow calls to interview students. However, the research assistants employed were students. A range of question types were used, including, open, probing, specific, and closed questions. The protocol interview focused on the following themes: the background of the firm, analytic applications of various stages of opening student account, queuing system at the branch, roles of frontline and backroom staff, check cycle time, customer time, checking IT functionality, IT legacy systems, approval cycle time, notification cycle time, filtering section, process efficiency issues, and the web community. The emphasis was on understanding the interviewee’s explanations and meanings as effectively and efficiently as possible. Furthermore, the interviewee was provided with a list of the most important themes one week before the interview. This was intended to promote the research’s credibility, and also to promote validity and reliability through giving the interviewee time to consider the information being requested (Saunders et al., 1997). In order to identify comments that were important to the research topic, attentive listening on the interviewer’s behalf was thus extremely important. A major concern was that the findings from qualitative research using an interview that is unrepresentative of the population frame (i.e. all retail banks offering student accounts) cannot be used to make generalisations. However, the validity and understanding that have been gained from the interviews have substantially more to do with data collection and analysis than with the size of the sample. Weatherly and Tansik (1993) pointed out that one of the dilemmas of studying individuals in highly demanding occupations is the threat that they may be too busy to participate. McGrath et al. (1982) stated that data collection is often a process of compromise between suitability and accessibility. They went on to argue that researchers may choose at times to forego some of the usually desired characteristics of scientific research (e.g. randomness, sample size, response rate) in exchange for mundane considerations such as how well the response pool typifies the behaviour under study or how accessible the respondents are. Therefore, dimensional and purposive sampling was used in constructing this case design because of certain limitations, i.e. financial resources and time (Robson, 1993). Phase 3 – primary research: process observation According to Chen (1998), observing processes serve as an effective approach to identify problems pertaining to quality. The specific observation technique that was used is known as participant(s) as observer(s), or becoming a guinea pig (Saunders et al., 1997). This methodological approach is an effective way of developing, at first hand, an understanding of the service experience in exactly the same way as a customer would do as they come to interact with the service provider. Research assistants are students who are simultaneous participants and observers. Therefore, they were exposed to different stages of the OSA process. Thus, they gained
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knowledge without hiding their scientific intentions about the operational activities as they occur in real-world context, in real time, and without the prompting of potential distortions or discomfort from post hoc verbal descriptions. In addition, they remain in the background and watch and listen to what others do, what they say, and the circumstances in which these actions and comments occur. Field experimentation taking place in the branch is realistic for external validity. One can gather quality data, and thus obtain an insightful understanding of customer perception and how it is influenced by all the various activities which occur throughout the whole process of the service delivery, as it proceeds in its natural environment. A significant factor that enabled the use of this technique was obtaining organisational access and co-operation. During the development of the research strategy, it was thus important to consider the conflict between what is theoretically desirable on the one hand and what is practically possible on the other (Buchanan et al., 1988). Failure to obtain sufficient physical access and co-operation may have required a review of the feasibility of the research, and thus modification of the research question and objectives. The primary purpose of phases 2 and 3 of the research strategy was to provide the necessary data required, addressing the following terms of reference: . to develop a service quality process map to depict the operational process steps, representing both consumer and service provider perspectives; and . to identify and express clearly diagrammatically problem areas regarding service delivery. It was from this position that one was able to prepare justified solutions to the problems identified. Data collection for this study relied on many sources of evidence, such as documentation, archival records, interviews, observation, and physical artefacts (Yin, 1994). Yin (1994) suggests that the various sources are highly complementary, and a good case study should use as many sources as possible. The use of multiple sources in this study allowed the author to address a broad range of issues of the OSA process (Patton, 1987). Therefore, the essence of this approach, so-called triangulation or hybrid strategy, was that it tried to illuminate the set of objectives enumerated in the previous section. However, for all its appeal on an experiential basis, criticism has been aimed at the use of the case study method, and this is associated with the issues of verification and generalisation (Guba and Lincoln, 1981; Campbell and Stanley, 1966). Once the results of interviews had been recorded, they were transcribed and analysed to enable the author to map the OSA process. The initial draft was checked and validated with members of staff in practice before being refined. The basic framework (original flowchart) was also checked with five students and two practitioners (i.e. a manager from another practice and a consultant of financial services) to ensure that any general misunderstanding was removed. Therefore, with triangulation, the potential problems of validity were overcome because multiple sources of evidence essentially provide multiple measures of the same phenomenon in Lloyds TSB Bank plc. Table I provide a concise history of Lloyds TSB Bank plc. In the last two decades the financial services sector has experienced fundamental changes (Nellis and Lockhart, 1995; Bloemer et al., 1998). Financial institutions are facing increased competition, deregulation, increasing consumer demand and
Date
Event
1765
The origins of Lloyds Bank stretch back to 1765, when John Taylor and Sampson Lloyd set up a private banking business in Birmingham Lloyd’s association with Taylor is dissolved The partnership changed its status to a joint stock company, naming itself Lloyds Banking Company Ltd. A period of rapid growth followed. This was largely through mergers with two large domestic banks (Wilts & Dorset Bank, with around 100 branches in 1914; and Capital & Counties Bank, with 473 branches in 1918), and also through acquisitions of several small banks. The result was that Lloyds had become a powerful banking force in the Midlands by the 1880s The Lloyds Bank “black horse” symbol was registered when it took over two private banks in Lombard Street in the City of London. The black horse is the recognised emblem of Lloyds TSB throughout the world Due to domestic pressures (i.e. the post- First World War economic depression), Lloyds begins to pursue a strategy of international expansion. This is in addition to its presence in France through the acquisition of Armstrong & Co in 1911. This was achieved through mergers (e.g. London & Brazilian Bank in South America, 1923) and acquisitions (e.g. London & River Plate Bank in South Africa, 1918) Following the failure to acquire Martins Bank, Lloyds planned a progressive group concept. This was intended to help Lloyds withstand the growing pressure from American banks entering its domestic markets, and also to promote further expansion overseas. By 1971 Lloyds Bank had achieved a truly international presence, with offices in nearly 50 countries Market dynamics caused by competition, deregulation and technological innovation forced Lloyds Bank to make fundamental changes to its corporate strategy that focused on shareholder value: Lloyds Bank divested itself of businesses such as its investment banking arm, and focused on the far more profitable retail banking sector in the UK Lloyds Bank merged five of its businesses with the Abbey Life insurance company to create Lloyds Abbey Life plc. This expanded Lloyds’ growing insurance business Lloyds acquired Cheltenham & Gloucester in a move to expand its home mortgage business Lloyds merged with the Trustee Saving Bank (TSB) to form Lloyds TSB plc. This expanded Lloyds’ customer base and its product portfolio In a bid to strengthen its life assurance business, Lloyds acquired Scottish Widows. This made Lloyds the second largest provider of life assurance and pensions in the UK
1852 1865
1884 1911
1960s
1980s
1988 1995 1996 1999
Sources: Lloyds TSB Group (1999); Lloyds TSB Bank (2000a, b, c, d)
galloping development in technology. Therefore, marketing managers are forced to rethink their marketing activities to sustain competitive advantage. To maintain its stability and growth, Lloyds entered the student segment by providing a student account for various reasons. However, the OSA process has not been fully investigated. Therefore, this study focuses on the operational process of OSA. The first step in any important shift programme must be to evaluate “where we are now” and identify the key problems which need to be tackled. Therefore, the prerequisite is for a tool which will assist in answering the question of where we are now, dealing with issues such as provision of clarity to end users and an identification of the original process of OSA (i.e. the core process) that takes place to serve students. The following sections cover the service quality process map, which represents a clear visual form of the OSA process and facilitates the definition of problem areas, diagnosis and solution generation.
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Table I. A summarised of the historical background of Lloyd TSB Bank plc
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Service quality process map OSA: the current process In order to grasp an understanding of the process of OSA, it was necessary to develop a detailed flowchart representing the process steps from the viewpoints of the consumer and the provider (i.e. Lloyds TSB Bank plc). Through interviews and participation observation we were able to develop at first hand an understanding of the service process as it proceeds in its natural environment in real time. However, documentation of the process in the form of a flowchart diagram facilitated analysis and the identification of problem areas. Documenting the process aided our knowledge and understanding of how the service is delivered to the customer. A view of the current process of opening a student account is shown in Figure 1. The process of OSA is split into two sub-processes by a line of visibility. From the original flowchart, the potential problem areas are determined. There are some problematical areas which show that the OSA process is currently weak in design. However, without discovering these potential problems there cannot be effective management of service quality and improvement. Figure 2 therefore illustrates the problem areas that need to be tackled. Some of the problems are soft problems, and cannot be displayed on the flowchart. These are discussed in the following section. Potential and actual problems of the flowchart Problem areas. Once all the steps in the flowchart have been documented, it is possible to analyse the flowchart to reveal potential problems areas. Changes to a flowchart can be one of four types (Lovelock, 1991). These are: (1) reduced divergence – this leads to uniformity, which tends to reduce costs, improve productivity, and provides a more effective distribution system: this process is usually aimed at reaching economies of scale; (2) increased divergence – greater customisation and flexibility: this leads to price increases, and indicates a niche positioning strategy; (3) reduced complexity – this indicates a specialisation strategy, steps and functions are dropped from the system, so the resources can be focused on narrower services and complete satisfaction to the customer; and (4) increased complexity – this strategy is used to gain a greater penetration in the market (e.g. banks have expanded their product ranges to maximise revenues). Below we detail and discuss the problem areas that have been identified and highlighted in Figure 2. Entrance and exit. The first problem that was identified is the bank’s opening hours. Although this cannot be changed diagrammatically and expressed on the flowchart, the problem needs to be addressed and considered. Identification of problem areas is undertaken with the intention of improving the service and customer’s perception of the service. Most banks and building societies are open from 9.00 a.m. until 5.00 p.m. during the week and from 9.00 a.m. to 3.00 or 5.00 p.m. on Saturdays. However, some customers/students may find it hard to access their bank during these hours, especially if they are working/studying from 9.00 a.m. to 5.00 p.m. Alternatively, the internet could be used, which would allow 24-hour banking. Nevertheless, customers who do not have access to the internet or do not feel that the internet is secure would not benefit
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Figure 1. Opening a student account
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Figure 2. Process for opening a student account: analysis of the potential problem areas
from such a service. So, the high street banks should be looking towards extending their opening hours. Obtaining the form. We have identified this as being problem area number two: when the customer goes to obtain a form, are there enough available, and are they identifiable? To solve the immediate problem of supply, a fresh supply should be put on the shelves daily. During the first week of university, when all first-year students are opening accounts, bank staff should check on the supply during the day in order to manage demand. Completing and submitting the form. The customer needs somewhere to rest and sit so they are able to complete the form. In most banks there are tables and chairs as well as counters for the customer to rest on, but probably not enough to cope with the demand in the first week of term. This could be rectified by adding a few more chairs, and surfaces to write on. This then brings us to the application form itself, and specifically the user friendliness of the form. Lloyds TSB stated that they already have existing problems with the language barrier of the form as it is only written in English. The bank still has not rectified this problem. One method of solving this problem would be to have application forms in each different language (e.g. for freshly arrived international students in the UK): this would provide excellent customer service and increase the perception of service quality to customers. Illegibility of handwriting may also prove to be a problem. This is illustrated in the revised flowchart. Each form has to have precise and correct information in order to be processed into the database. This takes time as the form has to be screened and all the information then has to be processed into the database. The revised flowchart addresses all of the above problems to provide a customer-friendly service, all of which makes the customer feel better about the process which they have just completed. Service counter staff availability/is the customer prepared to queue?. Once the form has been completed, the customer then needs to go back to the service counter, queuing if necessary. This has a negative effect on the customer. Furthermore, there is nothing to occupy their minds, such as a customer noticeboard, as they are queuing. One problem for the bank is that the customer has already spent a great deal of time filling in the application form. They will not want to waste any more time queuing. The system works on a first-come, first-served basis. This is unlikely to be changed in the short term, because it is an equitable way of inventorying customers. It is the processes that occur between queuing stages, such as returning to the service counter to submit one’s form, that need addressing. Thus, the customer is not wasting any more of their valuable time by returning to the queue. This problem is rectified in the revised flowchart (see Figure 3) by the clerk entering the customer’s details straight into the database. This would provide a more effective customer service, which can be seen in the revised flowchart. Required identification. After all of the form filling has been completed, queuing has taken place and the customer is at the counter, unless they have two forms of identification with them then the process stops once more, maybe for a few hours, days, or for good as the customer may not return to that bank. The fact two forms of identification is required should be mentioned at the beginning of the form so time is not wasted by the customer or the bank staff.
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Figure 3. The revised process for opening a student account
The above processes and problems all take too much time. The revised flowchart does not completely solve all the problems and it would be naı¨ve to think that it would do so, but it does address the problem of time wasting: the bank becomes more efficient and productive, and customer satisfaction levels are met. Bearing these factors in mind, the current flowchart will be changed according to the reduced divergence factor, as the new process provides uniformity and economies of scale.
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Recommendations for changes to the process design Through the identification of problem areas within the current process flowchart (Figure 2), the author has been able to develop recommended changes which will need to be made to operations, as illustrated in the revised flowchart (see Figure 3). These changes will need to be made so that the service experience is as effective as possible for the customer, and as easy to provide as possible for the bank’s frontline and backroom staff. The major change that the author has made to the process is to remove the paper-based application form. This is one of the main problem areas from the point of view of both the customers and the bank. The customers’ perception of the quality of the service will be formed at the service counter. If the paper form is removed from the process, this will enable the process of opening an account to be quicker, as the clerk will enter the details directly into the bank’s database while the customer responds to each question. This will also allow for greater interaction between the bank and customer, along with the customer receiving a sense of customisation in the service. The increased interaction between the customer and the bank’s employees results in the need for employees to be empowered and competent in their delivery. This is because the employees are drivers of service quality dimensions. The critical qualities that influence the service experience are the following: . Reliability of the service. Can the customer rely on the frontline and backroom staff to carry out the necessary work? . Responsiveness of the staff. Do the frontline staff undertake their duties quickly and efficiently? . Assurance from the staff. Do they give credibility to the service and can the customers trust them? . Empathy from the staff. Are the staff able to customise and personalise the service to suit the customers requirements? . Tangibles. These are things such as the physical surrounding environment, the atmosphere in the bank, and the equipment provided. . Ability to recover from errors. If things do go wrong, can the staff recover in order to keep the customer satisfied? Unhappy or unmotivated staff will have a detrimental impact on service quality. The bank has to ensure that staff are empowered to act in response to unexpected requests from customers. In addition, staff must feel valued by the organisation so that they are motivated to create the correct impression. Feedback from the staff regarding their opinions, and training sessions, will help to ensure that the service experience is of a consistently high standard.
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The whole process will be dependent on the capacity of the service, which includes the number of counters and service personnel available. This will have to be scheduled carefully to meet peak demand so that the service experience for the customer is as smooth and satisfactory as possible. From the bank’s point of view, the revised process will be simpler and will prevent staff having to check the accuracy of the application form once the customer has completed it. The customer’s details can be entered directly in to the bank’s database, which will speed up the processing of the account and remove a lot of the paper-based information which has to be mailed to other departments and stored for record purposes. The resource requirements that are needed in order for customer satisfaction to be gained from the new service experience include: . a sign at the old location of the application forms informing customers of the new process; . the availability of trained staff to meet peak demand; and . the availability of service counters to meet peak demand. The changes to the service encounter which are recommended will result in increased efficiency in the delivery of the service to the customer. As a result, service delivery will be more efficient for the customer, avoiding the lengthy process of completing the application form. An acknowledgement of their acceptance will occur on the same day, together with the welcome pack. The new revised process depicted in Figure 3 could overcome the problems identified in Figure 2. However, customer requirements are always evolving, demanding changes to the way the process operates. There will be constant demand to reduce cost and cycle time, and there will be new technology capabilities emerging, all of which will drive the need to improve the process continuously. One can see the recommended changes that have been implemented in an effort to improve service quality (Figure 3). The main problem area found was the requirement for the customer to complete a paper-based application form, which took excessive time for the customer and excessive time for the bank staff to screen. Recommendations have focused around the removal of this paper-based form and the implementation of a computer-based solution (Hammer, 1990). Therefore, this is where creative redesign work is beneficial. As part of the redesign process a thorough examination of new capabilities provided by emerging new technologies is performed, so that the re-engineering considers both the objectives of the process and novel ways of achieving those objectives based on new the capabilities of technology and robust, simplified process designs. Thus, this paper suggests a re-engineered process of OSA. Re-engineering the OSA process: e-process (i.e. virtual process) It is far easier to design a process from the outset than to try to modify an established design to accommodate limitations and constraints of service quality, as was performed using a flowchart to portray improvements to the design of the process. Although it is indeed often the case that organisations simply modify existing process designs in response to current market dynamics, it is undoubtedly of far more benefit (if resources permit) to service quality to adopt a more proactive approach towards process design.
There are various views of the role of service process design. The most limited and short-sighted view is that process design is finished when a feasible design has been developed which meets market needs. However, market conditions are very rarely stable, and a technological push can give rise to new process opportunities. Such an opportunity has been provided relatively recently in the shape of electronic commerce (e-commerce), and specifically the internet. According to Sharpe (1999), 7.3 million people will be accessing online banking services in the UK by 2003. Although Lloyds TSB plc has (along with most other major banks) established an online/virtual presence, there is currently no facility to enable a customer to open a student account. This failure to take a proactive approach has given rise to the opportunity to adopt a holistic view of the current service process, and to re-engineer this creatively in the light of this technological push towards e-commerce. Business process re-engineering (BPR) is the process of reconfiguring activities to create a dramatic improvement in performance (Dignan, 1995; Johnson and Scholes, 1999). Information technology, and more recently the internet, are important driving forces behind BPR. Therefore, this study proposes a re-engineered process (e-process or virtual process) of OSA, which is illustrated in Figure 4. The consequential effect of the e-process is a direct impact on productivity, time compression and cost reduction. The above framework highlights some of the advantages that the e-process brings to the service: the re-engineered process, as a process innovation of a financial product, should provide more competitive advantage than focusing on the performance development of attributes. Greater consistency. One of the most frequently stressed differences between goods and services is the lack of ability to control service quality. Unlike goods, the contact personnel in any branch of Lloyds TSB are not inanimate objects, and being human, they exhibit variances that cannot be controlled by the service process (Bateson and Hoffman, 1999; Rust, 2002). By automating the interface with the customer via a fully integrated web site, greater consistency could be achieved. Therefore, there is a need for real-time analysis of information, which should be the driving force in the development of data mining and data warehousing methods. Greater consistency is seen as an improvement in service quality. This e-process mapping increases flexibility, improves responsiveness and maintains standardised and homogeneous operations. It also allows the entry of accurate and timely customer data. The benefits attributed to the e-process map are summarised in Table II. This study found that both productivity and quality increased with higher use of IT. This is consistent with the findings of Mukhopadhyay et al. (1997). These developments yield positive results. In the long run, the above gains should in turn lead to an improvement in financial performance (e.g. sales, profits, market share, and return on investment). However, financial services firms which invest in unfit e-banking processes may end up with operations which seem to be less profitable (e.g. it will be difficult to recover investment). Greater access and availability. A Mintel (2003) study has revealed that by 2004, 60 per cent of UK households will have access to the internet, which may greatly increase the customer base for online financial services. In addition, they forecast that over 20 million people in the UK will be using e-banking services by the end of 2005. Gandy (1999) makes a similar point, reporting that the use of internet banking will increase from 7 per cent to 28 per cent by 2004. This trend is also apparent in the USA,
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Figure 4. The re-engineered process (e-process)
Benchmarking indicative measures
Improvement assessment
Lead time Duplication of work and repetitive work Costs of producing service Responsiveness Data entry errors by frontline staff Paper usage Customer responsibility Co-production role Empowerment of customer Customer satisfaction level Volumes of enquiries and sales Potential data entry errors Costs of promotion Cost of transaction Convenience and customer accessibility to their finances Time in updating and revising documents Dissemination of up-to-date product information to customers Supply of information
Down Down Down Up (prompt) Down Down Up Up High Up Up (increased) Down Down (lower) Down 24-hour banking availability throughout the year Down Faster On-line
Singapore, Sweden, Germany and Norway, and the more advanced service-providing economies in the world (Barto, 1999; Mulligan and Gordon, 2002; Gerrard and Cunningham, 2003; Mattila et al., 2003). The number of customers demanding e-banking operations is likely to increase in the future. With an increasing student population, increasing computer literacy and availability of computers, and reductions in the cost of computers, telephone bills and internet access, there will be a substantial rise in this target market of consumers choosing e-banking operations. Therefore, this will change banking operations for the majority of retail banks. Thus, it is therefore imperative that Lloyds TSB allocates resources and gets a share of the action. Today an automated web site is accessible 24 hours a day, seven days a week, without the need for human operators to keep it functioning. Not only does this clearly offer increased convenience to the growing number of people with internet access, it also represents significant cost savings for the bank. The cost of maintaining manned premises in prime high-street locations, 24 hours a day, seven days a week will be very prohibitive. Much of this cost would be ongoing revenue expense, whereas the greatest cost in setting up a fully integrative web site network is capital. Substantial investment in effective information and communication technologies may minimise physical presence and infrastructure by organising in virtual teams. Therefore, financial services firms should exploit new market opportunities through communities that rely on virtual processes. Greater consumer involvement in the service factory. The e-process illustrates a fundamental aspect of the service model, demonstrating that consumers are an integral part of the service process. This is consistent with the studies of Bateson and Hoffman (1999), Akamavi (2002), Rust (2002) and Grove and Fisk (2002). A fundamental difference with the e-process (i.e. the re-engineered process) illustrated in Figure 4 is a greater active participation on behalf of the consumer. For example, there is no need for
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Table II. Performance results of e-process map
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contact personnel (e.g. a bank clerk) to duplicate the entry of information onto the bank’s data acquisition and database. This task is actually co-produced by the consumers themselves, directly on the bank’s web site. Thus, changes made in the service factory have necessitated changes in consumer behaviour, firstly to reflect a shift towards self-service (Tseng et al. 1999), and secondly so that consumers do not need to go physically to a bank to experience the service (i.e. virtualisation of banking operations). Students are computer-literate and may represent an explicit segment for virtual banking operations/e-banking business. However, managers should encourage them to use the e-process or virtual process. Limitations and constraints of the re-engineered process The main difficulties with the re-engineered model are those that centre on the customer’s perception of the service and the customer’s skill in operating the graphical user interface (GUI) of the web site. If the customer perceives interpersonal contact to be an important element in the service, then full automation is inappropriate. Customer skill is related to customer selection, and also to the flexibility of the service offered. Therefore, it is necessary for the service designer to know and understand the customer, and to design a GUI that the customer will find easy to use. The presentation of too many options frequently only causes confusion, and automated service GUIs are most effective when only a few facilities are offered. Benefits attributed to e-process mapping include increased flexibility, improved responsiveness and customer co-production empowerment. This study presents only non-financial gains, which indicate the performance of e-process operations. The performance results are elementary at this stage, and this study focuses on only one firm. Therefore, managers should be cautious when interpreting these findings: more empirical studies are needed in order to generate more sound managerial implications Thus, researchers should direct efforts towards quantifying the performance of e-process operations across the financial services sector. Conclusions From documenting the process, the functions and activities of opening a student account with Lloyds TSB have been determined. The biggest problem identified from the original flowchart was the time it takes from first entering the bank to leaving and actually receiving the cards and chequebook. This led to the flowchart being re-engineered so that the whole process is performed at the counter, with all the customer’s details being entered directly into the database. This is more efficient for both the bank and the customer, and also cuts down on paperwork. These re-engineering efforts resulted in a new financial product development, producing increases in revenues, operating savings and improved service quality. These results should be quantified. Therefore, there is a need to examine this performance issue. Real-time processing by customers at points of encounter replaces manual intervention in the backroom zone. This is consistent with the findings of Shin and Jemella (2002). The time spent on customer details related to manual data entry is eliminated, while customer data is directly and automatically transferred to the data warehouses. Customer interactions appear in the configured framework of improved information flow. The introduction of the e-process should enact its uniqueness in the
marketplace and deliver competitive advantage. Therefore, further studies should address questions which can help to improve financial product development/process innovation. Thus, more research is needed to determine how technological innovations can be acknowledged in the new financial product development literature. This process innovation is based on customers’ value experience, and searches to eliminate all that does not contribute to customers’ added value creation. The e-process permits the customisation of a number of financial products and mass account opening activities via the internet. This study has significant implications for managers as it provides them with a redesigned blueprint for the e-banking process. The shift towards a more innovative firm is not simple, as human capital (i.e. employees and customers) will find it hard to change. A financial services firm can re-engineer its banking process but not its human capital. Therefore, managers should assess the internal and external readiness of staff and customers to implement this e-banking process operation. They should also identify, outline and control critical success factors to improve the levels of readiness. Thus, it is essential that managers learn how to drive corporate culture towards innovation in the financial product development process. This issue represents an area of research related to e-banking process implementation. The flowchart methodology used in this study illustrates the effectiveness of flowcharts as a technique to document and highlight service operations, and the line of visibility as the line of virtualisation/virtual line. However, flowchart methodologies are limited when documenting detailed processes. For example, when service delivery becomes more complicated, this will naturally increase the complexity of the flowchart, even though large processes can be created on huge diagrams known as brown papers. The difficulty still remains of clearly documenting the process so that the targeted customers can clearly understand the flow of the whole process, and hence understand how the service is delivered. Zineldin (2000, p. 11) also found that “technological changes alter the role of the customer and patterns of market communications, relations and interactions”. Managers should observe that the broad picture of developing future customer relationships can be difficult to prognosticate due to the explosion in and rapid development of e-banking operations. Therefore, further research should investigate the potential impact of e-banking and ICTs on future bank-customer relationships (e.g. customer relationship management of e-banking operations, e-loyalty after graduation). The financial services sector is growing, and is also facing a new delivery challenge in the shape of the internet and e-commerce. In addition, the e-banking process of an online banking operation is under-researched. Therefore, there is a need for further studies in this area. Future studies should help practitioners to identify stakeholders’ contributions to product development (e.g. process innovation) performance. Future studies need to address measurement issues related to the quality of e-process operation and the experience of internal and external customers. This study did not survey customers’ perceptions of using e-banking process operations. Customers may perceive the e-banking operation to be complex, which seems to create a negative attitude towards its adoption. Therefore, some customers may tend to be late majority or laggards rather than innovators. Thus, managers should try to comprehend laggards’ buying behaviour in order to stimulate the adoption of e-banking operations.
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The e-banking process enables customers to gain control of their banking operations. Managers should take this opportunity to regard customers as part-time workers and encourage them to be co-producers. Customers such as students, who are familiar with the internet, should not find e-banking operations complicated. However, e-banking operations may require a certain minimum degree of technical experience and competence. Customers may also find difficulties with personal service and computers and the internet (e.g. security and safety concerns, complexity, trust, lack of standards, regulations, and conventional principles) to be potential barriers to adoption. Therefore, considerable work needs to be undertaken to expand this e-process. For example, this study did not examine impediments such as security issues (e.g. risks, fraud, virus, and hackers) related to the e-process: these should be addressed as an area of future research. Various scholars in services marketing management have discussed process innovation but, this domain of the e-process is under-exposed. This study could also be reproduced by focusing on other customers (e.g. corporate customers), and other services industries. In addition, this study deals with the e-banking process as it relates to the student segment. Therefore, extending this study would assist managers with significant consumer behavioural aspects when re-engineering their banking process operations (e.g. financial product development via process innovation: e-mortgage, e-insurance processes). Financial product innovation plays a crucial role in developing competitive advantage and contributes to a firm’s organisational performance (e.g. profitability and expansion). Therefore, financial services firms should have a balanced financial product portfolio to maintain and protect their current market position and future competitiveness. References Agnihothri, S., Sivsubramaniam, N. and Simmonons, D. (2002), “Leveraging technology to improve field service”, International Journal of Service Industry Management, Vol. 13 No. 1, pp. 47-68. Akamavi, R.K. (2002), “Integrative model of financial product innovation: roles of customer and supportive activities unit”, paper presented at the 11th Frontiers in Services Conference, Maastricht, 27-29 June. Akamavi, R.K. (2005), “A research agenda for investigation of product innovation in the financial services sector”, Journal of Services Marketing, forthcoming. Ansoff, I. (1987), Corporate Strategy, Penguin, Harmondsworth. Avlonitis, G.J., Papastathopoulou, P.G. and Gounaris, S.P. (2001), “An empirically-based typology of product innovativeness for new services: success and failure scenarios”, Journal of Product Innovation Management, Vol. 18, pp. 324-42. Barto, G.L. (1999), E-Banking 1999: New Model of Banking Emerges, Gartner Group, Stamford, CT. Bateson, J.E.G. and Hoffman, K.D. (1999), Managing Services Marketing: Text and Readings, 4th ed., Dryden Press, London. Biazzo, S. (2000), “Approaches to business process analysis: a review”, Business Process Management Journal, Vol. 6 No. 2, pp. 99-112. Black, N., Lockett, A., Ennew, C., Windklofer, H. and McKechnie, S. (2002), “Modelling consumer choice of distribution channels: an illustration from financial services”, International Journal of Bank Marketing, Vol. 20 No. 4, pp. 161-73.
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[email protected]”, Department of Trade and Industry, Performance and Innovation Unit, available at: www.dti.gov.uk (accessed 16 February, 2000). Galloway, R.L. (1993), Principles of Operations Management, Routledge, London. Gummesson, E. (1991), Qualitative Methods in Management Research, Sage Publications, London. NUA (1998), “Benchmarking UK internet users – world”, cited in Department of Trade and Industry (1999),
[email protected], Department of Trade and Industry, Performance and Innovation Unit, available at: www.dti.gov.uk (accessed 16 February, 2000). Roger, D. (1999), The Big Four British Banks: Organisation, Strategy and the Future, Macmillan, Basingstoke.
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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0265-2323.htm
Learning during developing and implementing new bank offerings Eric Stevens Groupe ESCEM, Tours, France, and
54 Received May 2004 Revised July 2004 Accepted August 2004
Sergios Dimitriadis Athens University of Economics and Business, Athens, Greece Abstract Purpose – Knowledge of the management issues for developing new bank offerings efficiently is limited. Furthermore, recent research suggests that organisational learning can contribute greatly to the success of innovation projects. The aims of this paper are to provide a detailed description of the development process of a new financial product and to identify learning actions that may contribute to its effectiveness. Design/methodology/approach – Reports findings from a qualitative, longitudinal case study of a well-known French bank. Findings – The results revealed an informal development process consisting of a sequence of issues to solve and decisions to make. Research limitations/implications – Though observations fit with the theoretical model, the findings cannot be generalized due to the use of a qualitative methodology. Thus, selecting a development project that brings variance to the scope and degree of innovativeness could enrich the observed learning mechanisms. Second, as services are very heterogeneous, further research should be done on the development processes of different new services, for example standardised versus customised. Third, mechanisms of adoption or avoidance of learning procedures remain to be explored extensively. Understanding the reasons of choice and adoption of learning strategies according to the environment and nature of the project could lead to further managerial recommendations. Practical implications – Implications for banks to encourage learning during innovation are discussed and several opportunities for further research are suggested. Originality/value – An informal development process is revealed, consisting of a sequence of issues to solve and decisions to make. Multiple learning actions and strategies are identified that enhance process effectiveness and efficiency. Keywords Financial services, Innovation, Learning, Research Paper type Research paper
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 54-72 q Emerald Group Publishing Limited 0265-2323 DOI 10.1108/02652320510577366
Introduction During the past decade the bank sector has undergone, and it is still going through, major changes. Deregulation, increased internationalisation of banks, mergers and acquisitions, and the emergence of new technologies like the internet have contributed to dramatically harsher competition, pressures on profitability and the need for differentiation. These changes resulted in a major strategic turn during the early 1990s. Most banks moved from their initial concerns of operations, risk management and finance to a market orientation (Knights et al., 1993). In such an environment, banks need more than ever to adapt their offerings constantly to the changing needs of customers, to become more flexible, more efficient and more innovative. Recent surveys of the banking system (Roberts and Amit, 2003) have revealed that banks which have the ability to develop a constant flow of
innovations are more profitable in the long term. To do so, the development of new offers becomes a crucial issue, and an efficient new service development process may constitute a core competency for banks that perform well. This issue becomes even more important given the fact that developing and implementing a new financial service is a complex activity, and one for which few management frameworks exist (Menor et al., 2002). In fact, several studies have tried to identify success and failure factors when introducing new financial services (Barras, 1990; Brentani, 1993; Cooper et al., 1994; Easingwood and Storey, 1995; Edgett, 1996; Edgett and Parkinson, 1994; Lopez and Roberts, 2002; Easingwood and Storey, 1999) but much less work has focused on the internal management process of new service development (Hart and Service, 1993; von Raesfeld Meijer et al., 1996). Concerning the latter, recent research has emphasised the importance of learning during the development process and its relevance in managing this process more effectively. A relationship between learning, new service project performance and organisational performance has been established, suggesting that managers should pay particular attention to fostering organisational learning during innovation projects (Lievens and Moenaert, 2000b; Stevens and Dimitriadis, 2002, 2004). Based on this background, the present article aims at an in-depth understanding of how the process of creating and implementing a new financial service is managed, and more particularly aims to identify learning activities that contribute to a more efficient new service development (NSD) process. The paper is structured as follows. The literature section reviews existing knowledge on the new service management process as well as learning issues related to NSD. Then, the methodology of the longitudinal case study is presented, followed by the results, analysing the steps, the management practices and the learning strategies observed during this process. The discussion section draws conclusions and recommendations for managing such NSDs, and finally limitations and opportunities for future research are suggested. Literature review Even though few investigations have focused on the development process itself, one of the major conclusions of previous research is that the way a firm organises the creation of new offers is clearly identified as a success factor. Choices such as who was involved, how the different departments coordinated their efforts and which development stages occurred seem to have a determining role in final success (Atuahene-Gima, 1996; Brentani, 1993; Cooper et al., 1994; Drew, 1995; Easingwood and Storey, 1995; Edgett, 1996; Edgett and Parkinson, 1994; Thwaites, 1992). These empirical observations provided insights in three broad themes: (1) formal versus informal development process; (2) the importance of inter-functional cooperation; and (3) the impact of organisational aspects on the course of development.
Formal versus informal process Some evidence points to a formal and sequential development process, like those suggested for product development (Brentani, 1993; Edgett and Parkinson, 1994, Johnson et al., 2000), while other observations argue for more informal and less linear
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processes (Edvarsson et al., 1995; Salleh and Easingwood, 1993). The work of Reidenbach and Moak (1986), based on US financial firms, highlighted that companies using more formal procedures succeed more frequently, even if the duration of the development process is longer. Investigating 52 service firms, Jallat (1992, 1994a, b) obtained somewhat contradictory results. On the one hand, he observed that the degree of sophistication of the development process had a positive impact on the performance of new activities. On the other hand, he underlined that the process was characterised by a high degree of informality as most companies did not use formal development methodologies. Given the absence of in-depth observations, the existence of this contradiction should lead to further empirical research in order to investigate how service innovation can emerge and succeed while being informally driven. Importance of inter-functional interactions Several studies have stated that multi-functional teams, specifically created for the task, prevailed in the management of the NSD process. Observations have revealed that new services are the result of a co-operation rather than the result of a “champion” talent, either individual or departmental, even if a champion formally drives the process. Edgett and Jones (1991) identified the high level of personal contact maintained by the product manager all along the project as a factor of success. Moreover, they also noted the high commitment of senior managers and a high interaction process established all along the process as being main success factors. Similarly, carrying out an “action research”, Hart and Service (1993) established that a change in organisation was necessary to successfully achieve a shorter NSD process. They reported how communication problems and divergent long-term visions between the different departments – marketing, purchase, laboratory and packaging – induced serious delays in the launching schedule. Efficient NSD required a “functional integrative perspective”, setting up a less formal but more communicative organisation, improving shared information and decision making. The same conclusion emerged from the work of Sundbo (1997). Using in-depth analyses of the development process in Danish financial companies, he observed that the new service was achieved through informal social interactions between employees, which produced new ideas and procedures in a trial and error process. During the innovation process, and because of the new context, no books, models, consultants or previous experience were of any use. The innovation process was not based on a predefined plan. It resulted from both strategic intent and from the adaptation of the procedures and rules to the unexpected lessons resulting from experience. Given the limited number of observations focused on the inter-functional cooperation during NSD, it appears to be of primary importance to investigate further the course of the development process with a specific focus on the behaviours of the actors in charge of its management. Organizational factors Many of the studies cited above have also suggested that a change in the service offer entails a change in the organisation (Edgett and Jones, 1991; Hart and Service, 1993; von Raesfeld Meijer et al., 1996). Edgett and Jones (1991) reported that the innovation process began with the creation of a new marketing department in charge of the
development process. At the same time, due to a changing environment, a new organisation of the distribution network was adopted. The development process was redesigned, integrating a greater involvement and contribution of the various departments. A similar situation was suggested by Jallat (1994a, b). Reporting the development of a new concept of a low-cost hotel, he noticed that one of the first decisions was to create a department which was initially in charge of gathering market information and later in charge of integrating internal suggestions to the design and refinement of the prototypes. The observations made by von Raesfeld Meijer et al. (1996) reinforce the links that exist between service innovation and organisation. The authors investigated the changes in the social networks of a company during an innovation process by measuring the cognitive similarities and communication frequencies of the head of departments before and after development. Their results highlighted the important changes induced by innovation, since the social network, analysed through the communication frequency, was deeply transformed. Finally, Sundbo (1997) observed that companies tried to learn from their own experiences. He emphasised that innovative service was impossible to design and launch without a learning process involving multiple actors of the organisation. By trial and error, people in charge of the project would invent ways of learning the reaction of potential actors. By trial and error, they would select the most efficient design as well as the nature and the content of the subsequent steps. Building a new solution meant reducing uncertainty by acquiring knowledge about the solution itself. In this way, the management of service innovation seemed to rely on the ability of the actors to manage the learning process and to reduce uncertainty.
Organisational learning and NSD Research on products has established the occurrence of learning during new product development (NPD) (Cohen and Levinthal, 1990; Maidique and Zirger, 1985; Nonaka and Takeuchi, 1995; Trott, 2002). Thus, Madhavan and Grover (1998) stated that development teams are directly engaged in a knowledge producing activity that is embodied in the new products. Nonaka (1994) and Nonaka and Takeuchi (1995) demonstrated the existence of links between NPD and a learning process, observing that it is because teams produce new inferences that they are able to create new products. The fit of the final result with expectations is obtained when the development team is engaged in a process of production and testing of inferences as well as a mutual adjustment of representations. In this perspective, a service innovation project can be seen as a process of acquisition of information and a search for “new combinations” that reduce uncertainty, during which a learning process will lead the team to select the most efficient “new solution” (Lievens and Moenaert, 2000b; Midler, 1993; Van de Ven and Yu Ting, 1996). Services research has addressed the issue only recently, but seems to confirm the contribution of learning to innovation. Lievens and Moenaert (2000a) suggested that intra- and inter-functional communication is a critical activity during innovation process in financial institutions. Qualitative research has found support to the fit of an organisational learning model with NSD (Stevens and Dimitriadis, 2002, 2004; Stevens,
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2002), while quantitative research has demonstrated a link between learning and innovation project performance (Lievens et al., 2003). Based on this background, the objective of the present article is two-fold: (1) to provide a detailed description of the total development process of a new bank offering; and (2) to identify the different learning actions that have a positive effect on the effective management of this process.
Research methodology Given the research objectives, the use of longitudinal inquiry was particularly suited for several reasons (Cohen and Manion, 1994). First, the longitudinal approach seems to be necessary in order to identify the main events of the innovation process while they happen, providing the sole way to avoid the “ex post rationalisation” phenomena. Second, longitudinal inquiry can integrate non-planned changes, capturing information on the nature of and reasons for the erratic course of innovation (Van de Ven and Yu Ting, 1996). Third, research on learning entails having a causal perspective on behaviour. The “learning causal sequence” may be described as follows: if something is learned at one moment of the process, behaviours will be modified at another point of the process. This temporal sequence necessitates observing behaviours of the same individual and organisation over a period of time (Cohen and Manion, 1994). In the present case, our investigations covered two-and-a-half years, starting just after the birth of the project. The project has since been launched on the market and is considered by the management of the company to be successful. Our investigations stopped three months after the launch stage. The company, the context and the new service project The Cre´dit Mutuel (CM) bank was created in 1882 in the Eastern part of France, and is currently ranked third among French banks in terms of its distribution network. The bank is managed according to co-operative principles, but the portfolio of financial products is very similar to those offered by its competitors. Our research focused on the regional federation of Anjou, which accounts for more than 230,000 clients and over 2 billion euros of deposits. Because the regional federation had its own marketing, advertising, operation management and strategic planning departments, it had the power to design a new service. When this research began, the national confederation had nominated the Anjou federation as project leader for what was initially called “Service-Prix” (“Service-Price”) project. Before describing the project of this new offering, it will be useful to mention some important aspects of the French banking environment which shaped the decision to introduce the new service. The French banking system differs fundamentally from most European markets in two main points. First, the remuneration of positive current accounts has been prohibited since June 1967. This decision was taken in order to provide the bank with the huge amount of liquid assets necessary to cover the increasing demand of long-term individual credit. The second specificity is the ban on the billing of cheques issued by clients, decided in 1935. These two important decisions have in the past
contributed to the strong increase in the opening of new household bank accounts. This situation is described as the “neither, nor” rule of the French system. This legal context did not refer to the billing of other financial services or products. For example, the Visa credit card is billed on the basis of an annual fixed rate, whatever the debit or credit might be. Most services to households are billed. This tends to create a very complex structure of tariffs, making comparisons among bank offerings difficult or even impossible. The arrival of the euro currency obliged French banks to transform the “neither, nor” system. Since European banks are used to paying their clients for positive balances of their accounts, it was be possible for them to do the same for French consumers in order to attract new customers. In this context, the initial idea of the new project was to replace detailed and complicated billing by a predefined package, adapted to customer needs and consumption. The client would have to pay a fixed amount monthly for a set of various services, including cheques. This meant a major change, as only 5 per cent of customers were willing to change the current billing principles. Moreover, the transformation of the contracts with CM clients meant negotiating them with more than 230,000 customers. Data collection According to Cohen and Manion (1994), a longitudinal survey should be made up of repeated interviews of the same sample of respondents. Thanks to the cooperation of the bank, repeated interviews were conducted with the following executives involved in the project: the project coordinator at the federation level, chief executives, the sales manager, the organisation manager, the head of software development, the head of the administrative department, and the head of the marketing department. Nevertheless, due to the re-engineering of the company during the new service development process, the principle of repeated interviews of the same people was impossible to achieve fully. Interview guides were designed to cover the following three broad topics, according to the purpose of the inquiry stated in the previous section: (1) to identify what the managers in charge of the development considered as being their main concerns and issues for the development; (2) to identify how the changes and decisions were achieved, and specifically identify those that were based on learning processes; and (3) in the case of learning actions, to identify how they were achieved. The interviews were recorded on tape and written on paper. Also, notes were taken during meetings with executives and observations were written in a research diary. Data were analysed according to the recommendations of Eisenhardt (1989), Miles and Huberman (1994) and Yin (1994). Many triangulations were applied using other sources (written documents, reports of meetings, promotional leaflets, etc.), so that the chronology of the events had solid foundations. Then the data were analysed to identify the learning stages, learning strategies and learning actions using coding grids. Results In presenting the results of the case study, we will adopt the actors’ perspective on the project. While the adoption of an ex post perspective by the researchers might have led
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to the description of a formal process, the analysis from the actors’ point of view revealed a more confusing image of the process. The interviews revealed that the major problem that people have to deal with is the uncertainty of the decisions they have to take, the doubts and the ambiguity: “how to choose an alternative when the consequences of this choice are hard to imagine?” was the most uncomfortable question our respondents had to cope with all along the process. In fact, our first observation was that rather than having to manage a project through well-defined stages, the actors perceived a flow of issues and problems they would have to overcome in order to launch the new offer. This section reports on each of these issues, explicitly the way the actors of the development found solutions as well as the learning activities that took place during the handling of these issues. Identification of environmental changes Different events and signals coming from the company’s environment may initiate an innovation project, since different interpretations of this information will lead individuals to adjust their actions to the new circumstances. In the case study, it must be underlined that the actors interpreted the innovation as being a good answer to four major challenges: (1) The birth of the financial product was anchored in the informal discussions occurring during the presentation of a general survey on the impact of the euro currency. The perceived threads of new entrants in the French market pushed the management of the CM’s federations to gather data. Many internal reports, surveys and internal meetings involving the general management, experts and consultants provided multiple interpretations of the impact of the introduction of the euro. (2) As French banks were not billing the use of cheques, operational costs were rising. In this case, the marketers and the general management interpreted the decrease in profit as a result of these high operational costs. (3) Two years earlier, a first attempt to bill cheques had resulted in such a strong protest from customers that the project was withdrawn. (4) Becoming project leader at the national level was a good way for the area branch to strengthen its position inside the national federation. On such a major project, the demonstration that the Anjou federation was able to succeed in the development was an interesting way of acquiring a good image internally. At this stage, one cannot really speak of a project yet. Each person, whatever his or her position might be, evaluated the context and interpreted the situation by giving his or her own specific sense to each piece of information: We are starting this project without any framework, apart from a sentence taken from a speech of our president, or some declarations read in the press or even an informal conversation. Someone writes this on a report and on this base, another person begins a work of collection of information and data which is structured in order to emphasise the strategic stake of those issues. This initial work provides a first frame which may be transformed into a project.
Faced with this situation, individuals generated many potential solutions. By the use of interpersonal and informal discussions, the initial ideas were progressively
transformed. For example, the idea of creating bundle offers resulted from a member of the marketing department who observed the packages offered in the mobile phone market and tried to adapt them to the bank sector. At the early beginning of what will be retrospectively identified as a development process, the learning actions consisted of interpretations of the environment, based on day-to-day conversations, on the expression of concerns by general management, on the focus put on problems by the different department managers, and on the opportunities given during meetings to reformulate and adapt individual perceptions. Emergence of initial ideas The invention of new solutions, the first trials and validation of the individual intuitions required the agreement of the general management. Observations revealed that very early in the process, the general manager contributed to the development. He was expected to guide and approve the main decisions while leaving the actors free to invent “diverging” solutions. The initial strategic intent was defined in broad terms: “change the ‘neither remuneration nor invoicing’ principle and move to a transparent relation with the client”. If the accounts were to be remunerated, each service would have to be charged. This formula defined just some principles of change without providing any solutions. Rather than directing, general management gave only the first impulse. Such an action may appear as poor or too vague. But at this stage of the project, as none of the specifications existed, and as all potential solutions remained to be invented, it was impossible – and it would have been dangerous – to be more precise. The expression of a broad and inaccurate intent is to create the perspective, to provide the general direction in which the actors will have to move. By providing the frame of thinking, the general management opened the space for new interpretations. Sharing and transforming the vocabulary was used to “guide” the project. For example, the general and marketing managers decided to transform the name of the project: Initially the project has been called “Remuneration-Invoicing”. This means that in exchange for the remuneration of the accounts, each service must be invoiced. We did not agree with this principle. We changed the name in order to assert that our purpose was to deliver an added-value service. Remuneration-Invoicing means that you don’t care about the value delivered to the client. We adopted “Service-Price” because the actual problem is: do we deliver an added-value service? Is this value understood and is the price perceived as an equitable counterpart for the service?
Rather than having a close governance of the team’s work, the general management tried to induce a new interpretation frame that transformed the relation between the client and the bank. This formulation specified the new rules of the game without providing any solutions. By doing so, the general management provided the actors with the directions in which they could act. The main learning activities at this stage were linked to the formulation and sharing of guiding visions from individual experiences. Official birth of the development process The transformation of these new interpretations and representations into a formal project required that the general management could link them to the strategic intent of the company.
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In our case study, the general management communicated strongly and for more than one year on the future transformation of the context which would lead to changes in the rules of the game. During the same period, many meetings were held with middle management in order to assert that the relationship with the client had to change due to the context of the euro. During these meetings, no solutions were provided. The participants had to analyse why things should change and had to understand the impact of the change on the client’s relation with the bank. Because the interpretations remained open and blurred, they provided many opportunities for the actors to contribute to their definition. Therefore, the purpose of the meetings was not to solve, but to identify the problems, aiming at sharing the strategic intent and at diffusing it within the branch network, the organisation and the departments. At the same time, by organising formal and informal meetings with middle management, the general manager gathered multiple opinions and proposals. Middle managers were able to integrate the consequences of the strategic concerns for their own activity and, by doing so, to provide feedback about the potential of the new offers. Only when a consensus was achieved on the necessity to change and the feedback from the operational level fitted the strategic intent was the project formalised and officially launched. During this stage, learning was focused on internal representations in order to check whether a consensus for the development project could be achieved.
Composition and management of the development team The composition and management of the development team revealed surprising observations, contradicting most of the theories about innovation projects. Rather than having a project led by a well trained and motivated product champion, the development was driven by formal groups who changed constantly all along the process according to unexpected problems encountered, to the required competencies, and to the interest of the individuals themselves. These changes may appear surprising in an ex post perspective but are easier to understand in the perspective of an ongoing project. When problems are difficult to anticipate, when uncertainty about the issues of the actual stage is high, and when the next stages are impossible to define accurately, then it become most useful to adopt a flexible organisation. The constant movement of the development group’s borders allowed increased access to all available competencies and resources. The competencies needed during the process changed significantly at three stages, which occurred successively. In a first stage, identification of the consumer preferences was identified as being crucial for success. In a second stage, writing the procedures became very sensitive. The last stage was focused on the training of the sales department, on the way the product would be advertised and promoted, and finally on the kind of interaction the salespersons had to establish with their clients. Such development required a large scope of competencies that none of the staff members possessed entirely. Thus, two project managers worked successively on the project. One of them, a marketer, was very competent on the consumer and on the distribution aspects of the project. The second project manager was a specialist in organisational issues and had previously managed projects involving computer programming and writing of procedures.
The management of competencies must be considered as being at the core of the learning processes. Having access to experienced managers means reducing both the risk and duration of development. So, experience was used not to avoid learning, but to learn faster. Because they knew the way the company was organised, experienced managers were able to identify the way each decision could impact the rest of the structure. By using their knowledge of existing structures and people, they could anticipate individual or department resistance to change. Even though the project managers did not know in advance the final outcome of the development, they knew how to adapt the project to the existing structures or how to adapt the structures to the project. It can thus be suggested that the existing competencies and the possibility of associating them during the development contributes greatly to the final result. The observations revealed that the way competencies are associated is through formal and informal conversations held in the personal networks of individuals. Questioning well-known colleagues about their reactions to one’s choices was a good way to test the interest of a proposal. As one general manager of the bank explained about interactions: Each time the development group had interactions with the members of the organisation, it had to integrate the objections and comments that were made. It had to integrate the comments on the distribution network in January. The group had also to integrate the comments on the advantages offered to the client in April. This is actually an interactive process.
In this sense the learning process was a constant conversation process, at both individual and group level, which supported the constant adjustments required by new decisions. It can thus be concluded that supporting cross-functional communication by all possible means is one of the conditions for supporting the learning process and, consequently, the development process. The way the computer department was associated in the development illustrates the importance of the learning process during the initial stages. In fact, the department was excluded from the initial stages because several team members feared that its participation at the very beginning would lead to “freezing” the specifications too early: When the computer department is integrated too early, the bank [in the sense of the other departments] becomes dependent on it. This means that the bank will not be in the position to design the commercial offer. The computer department gets the upper hand. This is our case but I think that it is true in other banks as well. It may be because the staff of this department is very well skilled, but also because the bank is too slow. Because they have multiple projects underway, the computer department is under the constraint of time. If the bank does not provide an answer soon enough, then the risk for the computer department is to miss other deadlines. So they provide their own solution and they go ahead with it.
This decision to integrate the computer department late in the NSD process resulted in a major delay of the launch. Because they had not been involved early, the computing staff had no opportunity to mention their own constraints explicitly. Consequently, the development team did not allow enough time for the final programming and the launch was delayed by more than four months. This critical incident illustrates the importance of cross-functional communication in supporting the learning process. With weak communication learning is impossible, and weakly coordinated actions result in failures or delays. Similarly, if learning is not
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integrated into the adaptation of the offers, then the final result will be poorly adapted to expectations of consumers and management. Defining the new offering: content and processes The guiding principle adopted for designing the new package was to offer to the customer a new exchange principle: substitute the previous opaque way of invoicing the services by a new and transparent system. Thus, the bank created a package, bundling a certain number of operations and invoicing the client on a fixed rate each month. The decision to create packages bundling different bank services resulted from an internal learning process. When this choice was made, very little was known about customer expectations for this kind of offer. Once decided, the nature and number of operations included in the packages as well as the number of different packages remained to be decided. The final decision was made by matching the results of customer surveys with the profitability forecasts, which resulted in four packages (see description of the packages in Table I), targeted to different customer profiles. In reaching this decision, the bank recruited a PhD student who brought competencies on sophisticated surveys in order to measure customers’ reactions to different options. For the financial analysis, the auditing department made forecasts that included an estimation of the cost of each operation. Moreover, the marketing department conducted a survey to determine the pricing policies of competitors. Then the marketing and financial departments jointly defined the thresholds for each operation Name of package
Content of offer
Tranquilite´ (Tranquillity)
Basic offer: cheque account, Maestro credit card, monthly statements, access to internet, automatic saving of positive balance, overdraft tolerance of 5,000 French francs Options: personal insurance, second credit card, weekly statements, full distance banking service, revolving credit, credit card for the revolving account Basic offer: cheque account, Visa or MasterCard international credit card, monthly statements, access to internet, automatic saving of positive balance, overdraft tolerance of 10,000 francs Options: personal insurance, second credit card, weekly statements, full distance banking service, revolving credit, credit card for the revolving account Basic offer: cheque account, international credit card, monthly statements, access to internet, automatic saving of positive balance, overdraft tolerance of 10,000-30,000 francs Options: personal insurance, second credit card, weekly statements, full distance banking service, revolving credit, credit card for the revolving account Basic offer: cheque account, international credit card, monthly statements, access to internet, automatic saving of positive balance, overdraft tolerance of 2,000 francs Options: personal insurance, second credit card, weekly statements, full distance banking service, revolving credit, credit card for the revolving account
Confort
Se´re´nite´ (Serenity)
Jeunes (Young people)
Table I. The content of the final offer
(kind of services provided, number of cheques per month, overdraft tolerance, etc.). The final pricing policy was decided through multiple feedback loops, as a decision in one department had an influence on the other department. Within this stage of designing the offer, the learning actions were to recruit a new person in order to gain new competencies, to design alternative offers according to the available data, to test them with customers, to build financial simulations, and eventually to combine all these results in order to decide on the final offer. Another major concern of the development team was to define a new interaction process with clients. Producing a new service means creating a new scenario, defining the role of each of the actors, and building the physical evidence that will support the interactions among the actors during the performance. By writing a scenario describing what occurs in this or that case, the development team designed the way that frontline people, consumers and the information system should interact. The formalisation of this interaction process was induced indirectly by the information system which, to operate properly, required a low level of ambiguity. As a result, all operations had to be rigorously detailed and written. Writing these procedures was a learning action in itself. It obliged the developers to integrate in detail the different contributions and, by doing so, to test the different suggestions. Moreover, it provided explicit guidelines for the computing department. Furthermore, the creation and implementation of the packages entailed training the sales force. The distribution of the offers was a major concern of all persons involved in the development. By being able to strongly support or, in contrast, to raise obstacles to the new offer, the sales force was perceived as a critical success factor. Since clients were not familiar with the new packages, each salesperson had to meet clients, explain the principles of the offer, convince clients of the benefits of each choice by making a simulation, and establish the contract. Once the client had agreed, frontline people also had to be able to give advice and to help to find appropriate solutions to any problem encountered. Performing those operations required good knowledge of the way the system worked, of consumers’ expectations, and of the arguments that would be used to convince clients. To prevent any negative reaction, the sales force was involved very early in the process, by different means. First, a sales manager was associated with the initial stages of the development and introduced his own constraints. Second, a simulation was organised to refine the way the new offers could be presented to clients. Third, the sales force contributed to the design of the software they would have to use during selling. Fourth, they introduced the idea that the client should be trained and they designed a selling process that allowed time for the client to learn the different procedures and to check the results. Finally, an intensive training programme was designed to make sure that the sales force possessed the new competencies required.
Adapting the organisation Even if appears to be very simple, the creation of bundled offers entailed the transformation of the entire production system. It required redefining the internal and external processes of interaction between the client and the organisation, and also the back-office operations. In this sense, the development and implementation of the new service created a change in the entire system, including nearly all the sub-parts of it.
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Because a service is produced by interaction, its change induces an organisational change, where each individual has to redefine their role and function. Our observations revealed that the innovation process resulted in an organisational change. The beginning of the change was based on the general management’s intuition that the success of the launch required that the sales people reinforce their role. Until then, no other operation required the sales force to meet all the clients, to convince and to train them. The job of sales persons was not very clearly defined. Most of them were also involved in the everyday administrative tasks of the local agency. The first decision taken in order to change this situation was to give more power to the head of network manager in charge of the sales force. A new director was hired for this purpose and a “Network Marketing” department was created in order to provide all the support and tools needed by the sales people. At the same time, investments in the training of the sales force were budgeted. Finally, it was decided to remove from local agencies the employees in charge of just administrative work in order to reinforce the commercial orientation of the frontline employees. Not surprisingly, the design and delivery of new offers resulted in a redefinition of the workflow, of job descriptions and of training, and resulted in the creation of a new department. As service innovation is a systemic innovation, the creation of a new offer induced a transformation of the organisation, included in the concept of “organisational learning”. Implementation Following the formal adoption of the concept, different means had to be decided on in order for the final implementation of the offer to succeed. Because they aimed at the achievement of a given behaviour and interaction process, these means guided and constrained the behaviour of each part of the organisation. They may thus be considered as different ways to “freeze” the new processes. The means used to constrain the interaction process were: . information meetings; . training; . publication of internal documents and reports describing the service; . redefinition of individual goals and measurement of gaps; . organisation charts; . the information system; and . promotional actions. Such a list may appear to be very long. Nevertheless, each of those means was adopted during the implementation of the new packages. We will briefly comment on the most important of them. First, the information system appeared to be one of the most efficient ways to institutionalise the new service. Once the electronic office integrated the new offer, employees were forced to follow the programmed procedures with very few possibilities of adapting them. In this case, the procedures were directly frozen during programming. Second, the promotional means contributed greatly to the institutionalisation of the service. As they provided an explicit description of the service, they defined precisely
the different parts of the process and the final result. By doing so, they created the clients’ expectations and forced the employee and the organisation to produce an offer that was similar to the description. The third mean that must be emphasised is the routinisation of the processes and behaviours that occurred each time the first trials produced satisfactory results. In this case, people repeated the initial sequence without having to follow a detailed, analytical and step-by-step process. Memorisation of the sequence resulted in a decrease of the use of explicit procedures. Finally, the customer also had to be trained to use this new offer, mainly because the new package necessitated a change in consumer behaviour. Rather than using cheques, credit cards or credit transfer indifferently in order to pay, the client would now have to check the level of debits already realised, compare it to the total amount included in the package, and then to choose his payment means. Training the customer to adopt a satisfactory behaviour was considered to be a commercial stake by the bank.
Discussion and managerial implications The objective of this paper was to provide a detailed description of the development process and to identify learning actions that may contribute to its effectiveness. A first important finding is that the development process did not corresponded to any formal, well-defined and step-by-step process. This confirms the results of the body of literature reviewed earlier, suggesting that service innovation projects are rather informal processes. Instead of a sequence of planned stages of steps, managers experienced and managed the development of the new offer as sequence of problems, issues and questions to which they had to find solutions. Such a view has major implications for new service management in banks. The organisation should avoid the trap of forcing its development teams into rigid procedures, detailed planning, predefined organisational and hierarchy structures. This does not mean that the development process should remain loose, disorganised or uncontrolled. Our observations identified that decision-making and problem-solving activities are much more effective when learning actions and loops were allowed to happen. Table II summarises the actors of the NSD process, its steps and the key decision for each step as well as the main learning actions that occurred. These learning activities are trial and error, simulation, observation of other actors’ experiments and behaviours, formal and informal discussions, cross-functional communication, representations and hypothesis building, transfer of previous experience, acquisition of competencies, making procedures explicit and transforming observations and tests into formal procedures. It is thus suggested that banks should encourage the occurrence of such actions by all possible means. For example, systematic reinterpretation of past events, defining guiding visions, opening up interpretations by choosing a specific vocabulary during the early stages of the process, opening up internal competition for the successful project managers, providing constant access to all the resources and competencies by keeping flexible teams, allowing the integration of new competencies if required, facilitating feedback loops by testing, prototyping and formalising experience and eventually adjusting the organisation according to the new delivery processes are a series of actions that should support the probability of success to a great extent.
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Interpretation of the information from environment, Hypothesis on the key changes in the environment
Identification of environmental changes
Composition of the team, project leader(s), required competencies, development methodology (if any) Identification of the value delivered to the client (attributes of the offering, delivery process, price), design of the information system supporting the delivery, training of the staff
Reviewing the organisation chart and business processes
Assuring acceptance by and uniformity across the distribution network
Composition and management of the development team
Defining the new offering: content and processes
Adapting the organisation
Implementation
Note: Actors – i.e. individuals, departments, organisation, and environment – all contribute to the different steps
Freezing specifications and behaviors, memorisation of sequences, internal/external communication and promotion, training
Adaptation of job descriptions, creation of new departments, process reengineering, training sessions of the staff in charge of the delivery
Identification of customer expectations and demands, observation of competitors, progressive refinements of the attributes of the offer, tests, simulations, trial and error, design and tests of delivery scenario, procedures writing, prototyping, mutual adjustments of the different components of the offer
Identification of expected difficulties, selection of the different competencies, cross-functional communication, problem-solving process
Internal communication, exchange of different points of Create the organisation which will support the development, define the degree of priority on the project, view, convergence to a consensus on the project create a common understanding throughout the organisation, associate motivate middle management, start the development process
Official birth of the development process
Creation of a broad frame of thinking, sharing of guiding vision, use of the vocabulary for extending interpretation frames, opening internal and external debates, facilitating formal and informal discussions on the general topic defined, checking the convergence of the interpretations, formulation of the first proposal/solutions to the problems
Data gathering, Interpretations of the environment from internal / external sources, inferences, testing process through informal exchanges, formal tests, convergence in the interpretation frame
Learning actions/tools
68
Emergence of the initial idea Formulation of a strategic intent, Guiding visions and choice of vocabulary, clarifying the main threats and opportunities from the environment, competition as well as checking internal strengths and weaknesses.
Key issues/decisions
Table II. Summary of observed organisational learning actions
Steps
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Limitations and suggestions for further research As is inherent in case study research, the results observed in this study cannot be generalised. The context of the observations is very specific to the company and to the project. Consequently our findings should be considered as exploratory, needing to be confirmed in a larger context, using different methodologies and broadening the research framework. In terms of the research approach, understanding of the NSD process should be extended by replicating our method in more case studies. Since longitudinal research is very demanding in terms of time, effort and company participation, in-depth case studies for recently launched services, based on multiple interviews but concentrated during the post-launch period, would constitute an alternative method for easier data collection in order to validate the different steps and the learning activities of the NSD process. A further step in terms of methodology should be the development of an instrument for quantitative survey-based data collection. Currently very few attempts have been made to measure organisational learning through quantitative scales and questionnaires. For this purpose, measurements used in similar contexts, such as the impact of learning on the success of joint ventures (Lane et al., 2001) could be used. Also, for some specific aspects of learning, such as project learning and communication flows, quantitative scales have already been developed (Lievens et al., 2003). These quantitative approaches could provide grounds for further generalisation of our results. In terms of replication and extension of the research framework, future research should take into account variables that were not controlled in the present study. For instance, our investigation focused on a major project. It is possible that the strategic nature of the project has an influence on the process, the number of its stages the actors involved as well as the learning strategies adopted. In fact, there is already evidence that while there may be a basic frame of NSD process that is applicable across any project, different stages of the process appear more critical for success according to the degree of innovativeness of the project (Gounaris et al. 2003). Understanding the reasons of adoption of learning strategies according to the environments and nature of the project in terms of degree of innovativeness, strategic scope and degree of standardisation versus customisation of the new service could lead to further managerial recommendations. Furthermore, mechanisms of adoption or avoidance of learning procedures as well as factors related to resistance to change remain to be explored extensively. It has been observed that some decisions in the case reported here were taken on the basis of some “guiding principles” that clearly were not learning actions. In other cases, random choices occurred, raising the hypothesis of a contingent process resulting from external events. One reason for these choices is the perceived duration and cost of learning (March, 1991; March et al., 1991; Simon, 1991). Because each of the learning loops entails spending time in the experimentation of results and in the analysis of the outcomes, a rational decision on all the parts of development appears impossible. Due to time pressures, and also to the difficulty of exploring all possible options and their consequences, it should be noted that learning is in all cases partial, fragmented and incomplete.
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Stevens, E. (2002), “Managing the interpretations and learning while innovating: evidences from two longitudinal case studies”, University of Newcastle upon Tyne, Newcastle upon Tyne. Stevens, E. and Dimitriadis, S. (2002), “Investigating the new service development process: towards a systemic dynamic model”, Proceedings of the 7th International Research Seminar in Service Management, la Londe des Maures. Stevens, E. and Dimitriadis, S. (2004), “New service development through the lens of organizational learning: preliminary evidence from longitudinal case studies”, Journal of Business Research, forthcoming. Sunbo, J. (1997), “Management of innovation in services”, Service Industry Journal, Vol. 17 No. 3, pp. 432-55. Thwaites, D. (1992), “Organisational influences on the new product development process in financial services”, Journal of Product Innovation Management, Vol. 9, pp. 303-13. Trott, P. (2002), Innovation Management and New Product Development, Prentice-Hall, Hemel Hempstead. Van de Ven, A.H. and Yu Ting, C. (1996), “Learning the innovation journey: order out of the chaos”, Organisation Science, Vol. 7 No. 6, pp. 593-614. von Raesfeld Meijer, A., de Ruyter, K. and Cabo, P. (1996), “Cooperation in new service development: a social dynamic approach”, Advances in Services Marketing and Management, Vol. 5, pp. 193-214. Yin, R.K. (1994), Case Study Research, Sage Publications, London.
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American consumers’ attitudes towards commercial banks A comparison of local and national bank customers by use of geodemographic segmentation Erdener Kaynak
Attitudes to commercial banks 73 Received April 2004 Revised June 2004 Accepted June 2004
School of Business Administration, Pennsylvania State University at Harrisburg, Middletown, Pennsylvania, USA, and
Talha D. Harcar Department of Business Administration, Pennsylvania State University at Beaver, Monaca, Pennsylvania, USA Abstract Purpose – This article demonstrates the application of geodemographic segmentation to the service industry by using commercial banking as a case example. Design/methodology/approach – Data were collected through self-administered questionnaires. Two sets of variables were used to profile market segments. Findings – Study results indicate that there are substantial differences between customers of local and national US banks in their evaluation of the relative importance of bank service charges and overall confidence in the bank. Compared to national banks, local banks were evaluated more positively by customers in areas such as extra services offered by the bank, image of the bank, and convenience of the bank. Originality/value – More focused and concentrated marketing strategies are suggested to achieve better local bank performance. Keywords Banks, Customers, Market segmentation, Performance management, Demographics Paper type Research paper
Introduction In recent years, financial institutions of all types are operating in an increasingly competitive market environment. In response to this volatile market environment, commercial banks have shown a renewed interest in marketing their products/services to their customers more effectively. To be competitive in this changing market environment, financial institutions, including banks of all sizes, utilize marketing planning tools and techniques. To this end, the concept of service differentiation and market segmentation has been applied in a number of financial settings. In recent years, micromarketing (relationship marketing/person-to-person marketing) is an approach that has been used substantially. According to this approach, there are four market levels: (1) segments (consisting of a group of customers who share a similar set of needs and wants);
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 73-89 q Emerald Group Publishing Limited 0265-2323 DOI 10.1108/02652320510577375
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(2) niches (a more narrowly defined group of customers seeking a distinctive mix of benefits); (3) local areas (target marketing which leads to marketing programs tailored to the needs and wants of local customer groups); and (4) individual customers (the ultimate level of segmentation leads to one-to-one marketing, often called relationship marketing) (Kotler, 2003, pp. 279-82). Contemporary marketing strategy development includes such concepts as segmenting, targeting, and positioning. The determination of a viable target market is the first step. Positioning strategy is linked to lifestyle market segmentation. For instance, the cultural values and attitudes of consumers are changing. These shifts contribute to changes in lifestyles and in purchasing behavior, expectations, and product/service choices. It is stated that many of the existing segmentation approaches suffer from the same problem: they identify types or categories of consumers, but they do not identify the specific individuals or households within a market area (Peter and Donnelly, 2004, p. 75). Hence, one way of segmenting the markets is according to trading areas served by banks, neighborhoods and bank type. For instance, Citibank provides different mixes of banking services in its branches, depending on the local demographic and socioeconomic characteristics of the area’s residents. In this study, this is analyzed by differentiating between local bank customers and national bank customers. The general purpose of this article is to extend geodemographic (local area based) segmentation to the services sector by using commercial banking as a case example. More specifically, the study was designed: . to determine the importance of selected patronage factors in choosing a commercial bank by local and national bank customer segments; and . to determine in a comparative way the perceived usefulness of a variety of services offered by local versus national banks. It is hoped that the information obtained from this study will provide commercial bank managers and decision makers with better insights into the kinds of services that local and national bank customers find most beneficial. This, coupled with a thorough understanding of the salient criteria used by customers in choosing a type of bank, should help bankers to develop more precise, targeted marketing strategies for each type of bank in order to attract a larger number of customers and to better cater to the needs of both current and potential customers. Use of geodemographic segmentation in bank marketing In the customer-oriented mission of commercial banks, one needs to study two interrelated aspects of bank marketing strategy. The first issue is whether the commercial bank can provide the needed/required banking services to its diverse market segments. The second issue is whether the commercial bank’s available resources and competencies can match the current needs and expectations of its target market(s). Hence, it becomes of paramount importance for commercial banks interested in serving their customers effectively to structure their marketing decision variables in an optimum way to form commercial bank-customer relationships (Kaynak, 1986). Bank marketers’ use of geodemographic market segmentation can result in better and more effective target marketing. With this segmentation system, a wide range of demographic
characteristics are analyzed, including age, income, ethnicity, marital status, education, and home ownership. Thus, a more precise market profile is created that can help commercial banks market their portfolio of products and services (Cohen, 1998). It must be pointed out here that commercial banks have two types of customers. The first type is a bank’s internal customers – that is bank employees, bank stakeholders, and bank constituencies. The second type is external customers, which includes a bank’s target market. In an ideal commercial banking operation, there is a three-way relationship among the bank, its employees/stakeholders, and its target market. The relationship between a bank and its diverse stakeholders and employees is called internal marketing, whereas the relationship between a bank and its target market is called external marketing. In recent years, a new and important relationship is emerging. It is called interactive marketing, which signifies the relationship between a bank’s employees/stakeholders and its target market (see Figure 1). Because of this, many commercial banks are building service quality through continuous employee training, streamlining their operational procedures, and conducting continuous consumer research into what bank customers and employees alike perceive as value-added, good-quality bank services (McCormick et al., 1996). In the bank customer service triangle, target marketing is the decision to distinguish the different groups that make up a market in order to develop corresponding products and marketing mixes for each target market. The key steps in target marketing are market segmentation, market targeting, and product/service positioning. The bank
Attitudes to commercial banks 75
Figure 1. Types of marketing practised by commercial banks
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marketers try different variables to see which reveal the best segmentation opportunities. For each segment, a customer segment profile is developed. The essential element of this matchmaking process between the needs of commercial bank customers and the offerings of the banks is the development of market segmentation and positioning strategies. This is the creation of a place or niche for each commercial bank in the minds of bank customers. As a result, positioning strategy is nothing more than a combination of product differentiation and market segmentation. Through this effort, each bank creates a unique position for itself relative to the position of the competing banks in a particular locality. Basic segmentation techniques target bank customers of a specific age, gender, race, ethnicity, marital status, educational background, or occupational characteristic to measure and assess the prevalence of relevant characteristics (Kysar, 2002). Let us now examine very briefly the different bases for the segmentation of commercial bank customers. Benefit segmentation Benefit segmentation identifies the types of benefits bank customers are seeking in patronizing a particular commercial bank. Benefit segmentation is a form of market segmentation that classifies buyers according to the different benefits they seek from a product/service. As such, it is related to purchase occasions, purchase intentions, and psychographics. In general, a commercial bank may wish to focus on satisfying one-benefit group. From this perspective, there are three bank market segments, namely: (1) security-oriented; (2) interaction-oriented; and (3) task-oriented. Generally, customers of banks in local areas are security-oriented. As a result, the bank and banker must look conservative and traditional. At the other end of the spectrum are task-oriented bank customers, who place their main emphasis on the bank’s professionalism. The mechanics of banking operations become very important for this market segment. These clients patronize mainly national banks, which have nationwide branch networks, and, in most cases, they value the speed, accuracy and efficiency of financial transactions. Finally, interaction-oriented bank customers value the relationship between the bank and themselves very much. How commercial banks manage their portfolios, the credit facilities they make available, and the variety of services they offer are among the factors affecting the attitudes and behavioral patterns of their customers. Depending on their needs, both local and national bank customers can be interaction-oriented (Holstius and Kaynak, 1995). In this instance, market segmentation is useful for selecting advertising copy, media, commercial length, and new service design. It uncovers and explains a cause-and-effect relationship that helps a marketer to influence customer behavior. From this perspective, benefit segmentation is coupled with psychographics and geodemographic information. Psychographic segmentation Some marketing researchers classify bank customers according to their “psychographic” characteristics. Using standard research methods of attitude and personality measurement, commercial bank managers attempt to discover fruitful
insights by asking bank customers whether they agree with certain attitudinal statements. This makes it possible to divide different consumer markets on the basis of lifestyle, attitudes, and values. Market segments within the same demographic group can demonstrate different psychographic profiles. It concentrates on the personal attributes of the bank customer. As bank customers’ attitudes, values, lifestyles, and past patronizing habits are altered, the benefits sought in specific banking situations change. Because of this, bank customers are grouped on the basis of research findings, and niche marketers have generally had a competitive advantage in today’s highly segmented commercial banking market. The commercial banking marketplace is continuing to fragment into smaller subsets of needs and behaviors, which is affecting the way commercial banks and other financial institutions market products and services to different lifestyle groups (Laurino, 1993). Marketers need to implement proactive strategies to satisfy these markets (Michman et al., 2003, p. 13). Geodemographic segmentation Geodemographic segmentation, also known as “clustering”, is a commonly used marketing tool in services industries in the USA. Commercial banks use cluster systems to analyze their customer base, target direct-mail campaigns, select bank locations, and perform a variety of other bank tasks. This technique combines elements of geographic, demographic, and psychographic approaches in an attempt to develop a comprehensive analysis of bank customer lifestyles. It analyzes a wide variety of characteristics that essentially describe each market segment. This is a multi-attribute segmentation. It is posited that geodemographic segmentation does identify specific households in a market/area by focusing on local neighborhood geography such as zip codes to create classifications of actual addressable and mappable defined neighborhoods where bank customers reside and patronize commercial banks of their choice. Practitioners of geodemographic segmentation believe that people tend to reside in areas populated by residents that are similar to themselves in socioeconomic status, race, educational attainment, housing preference, and other significant demographic and psychographic characteristics. By combining the variables of age, income, ethnicity, marital status, education and home ownership, it is possible to “cluster” households within a segment who share the highest degree of similarity or dissimilarity. Commercial banks that use geodemographic segmentation systems gather demographic, lifestyle, and patronage data from public and private sources to create the “clusters” – paroles of the archetypical inhabitant of each individual neighborhood (Mitchell, 1997). It was pointed out that geocode is the numerical descriptor that allows an address to be mapped. Without geocoding it would be impossible to place specific locations such as specific bank branches and other landmarks on a map. A segmentation code allows the marketer to classify to which cluster a specific customer from an already built database of customers belongs. The marketer can then use that information to classify current customers and look for more of the same type. A segmentation code is attached to an address that identifies which cluster or segment that address is in. The address must first be geocoded, and then a segmentation code can be assigned (Peter and Donelly, 2004). One such geodemographic segmentation system, created by Claritas Inc., is called Potential Ranking Index by Zip Markets (PRIZM). The system includes maps of different areas that rank/classify every US neighborhood into one of 62 distinct types
Attitudes to commercial banks 77
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or clusters of customers on their potential to purchase specific products or services. Each US neighborhood is assigned to one of these PRIZM clusters according to the current year’s demographic projections. This grouping utilizes 39 factors in five broad categories. These are: (1) education and affluence; (2) family lifecycle; (3) urbanization; (4) race and ethnicity; and (5) mobility (Michman et al., 2003, p. 22). Each PRIZM cluster is based on zip codes, US Census Bureau demographic information, and information on product/service usage, media usage, and lifestyle preferences to create profiles of the people who reside in specific neighborhoods. This data helps bank marketers identify target market selections, direct marketing campaigns, bank site selections, media selections, and to analyze sales potential in various areas. In commercial bank marketing, to be able to better target the market and to create both effective and actionable market segments, the following four criteria must be met (Cohen, 1998): (1) Market segments must behave as homogeneously as possible. Homogeneity must not be confused with how bank customers look, instead of how they behave. For example, targeting a segment such as the “50 to 60 year old segment who earn more than $100,000 per year in New York” will be different from how you target that same market segment in New Hampshire. Bank customers’ behavior cannot be predicted by examining only a few segmentation variables. One must try to understand bank customers’ behavior. (2) An effective bank segmentation system must be able to quantify the size of the segment in any bank’s catchments area with a given size or magnitude, such as a zip code. Quantitative analysis is used for each segment to measure a bank’s market potential. How many potential bank customers exist in a particular geographic area and how much will bank customers patronize each commercial bank type? Here, market segmentation can help bank managers ask the right questions to the right customers. (3) Bank market segments must be locatable. The success of a commercial bank’s retention and loyalty programs depends, to a greater extent, on the use of selected segmentation techniques. (4) A viable commercial bank segmentation system must assist the bank manager in reaching the bank’s market segments most effectively. It was stated in current bank marketing literature that much of the recent emphasis on marketing may have been placed on the particular services/products that banks are offering rather than on the particular market segments served. Because of this short-sighted approach, the marketing planning efforts of many banks have failed as a result of improperly identifying the true determinants of bank customers’ bank selection and patronizing decisions (Khazeh and Decker, 1993). It becomes of paramount importance to identify the true determinants bank customers perceive as being important. Also, one needs to look at the factors/characteristics for which bank
customers perceive differences across different commercial banking institutions (local versus national banks). Study methodology To accomplish the aforementioned research objectives, the data for this study was collected through self-administered questionnaires. The questionnaire used in the study was initially developed through interviews with bank managers, local and national bank customers and local and national bank staff in the study areas. These preliminary interviews helped to clarify issues and concepts to be covered, thus helping to process the survey into an instrument that was applicable, relevant and comprehensible by respondents. The survey instrument questionnaire was developed in March of 2002, and was tested in two pilot runs in April of 2002 and at the beginning of September 2002. A substantial number of changes and amendments were made after the first pilot, and some minor amendments after the second. The survey instrument was dropped off at the premises of preselected household respondents, and approximately ten days was personally retrieved by a group of trained Penn State Beaver Campus students. All of the respondents were given an equal time period to complete the survey questionnaire, and hence we did not compare the response duration as a criterion. The survey was designed to obtain information about the determinants of customers’ bank selection decisions. The full survey of 425 adult bank customers living in Beaver, Allegheny, Lawrence and Butler counties was undertaken in the fall of 2002. The survey took approximately 15-20 minutes to complete. The eligibility criteria were to be a commercial bank customer and to reside in one of the selected counties of Western Pennsylvania. It can also be stated that these four counties are truly representative of Western Pennsylvania. A total of 394 surveys were available for statistical analysis. In the study locality, there is a cross-section of demographic and socioeconomic groups, which makes the study findings more representative. The survey was undertaken to identify the importance of factors in choosing a commercial bank and the perceived usefulness of bank services among local and national bank customers. This rationale, together with the restricted number of respondents surveyed (around 400 customers were to be surveyed), determined the character of the sample. It is clearly very difficult to seek a representation of bank customers in a country as regionally and geographically diverse as the USA with such a small sample. We therefore attempted to stratify the population by counties and then undertook random sampling within each sampling frame. It was cross-checked to make it sure that the sample taken reflected the demographic and socioeconomic (gender, age, education, occupation, income) make-up of the local and national bank customers in the region. In developing the questionnaire, previous empirical research in the service quality area (Bolton and Drew, 1991; Carman, 1990; Parasuraman et al., 1991) and the financial institutions area (Teas and Wong, 1991; Lewis Prewitt, 1991) were considered. The questionnaire contained four major groups of questions: (1) the importance of attributes considered in choosing a commercial bank; (2) the perceived usefulness of local and national bank services; (3) the banking characteristics of the respondent (bank type, account type, frequency of bank visits, bank services used, period of bank account, number of different bank patronages, etc); and
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(4) a number of control variables such as gender, age, education, occupation, and income. A total of 31 items were selected to measure the important attributes considered in choosing a commercial bank, either local or national. These items captured the process, outcome, and tangible aspects of bank service quality; the convenience; the competitive interest rates; and the confidence of the bank and managers, financial counseling and advisory services. A five-point Likert-type scale was used to identify the degree of importance of different bank-related attributes in choosing a local versus national bank. The Likert scale responses varied from “not at all important” (1) to “very much important” (5). The perceived usefulness of several banking services by local and national bank customers was also measured on a five-point Likert scale, with the scale responses varying from “useless” (1) to “very useful” (5). The demographic and socioeconomic profile of the respondents is presented in Table I. Close examination of the profile shows that while local and national bank customer segments were similar in terms of their level of education, there were statistically significant differences in terms of other demographic characteristics. Local bank customers were mostly female, high-income earners, of a younger age group, who held more technical, professional, and trade-related types of jobs. National bank customers were younger than their local bank customer counterparts. As well as the demographic and socioeconomic characteristics of respondents, information related to account characteristics, frequency of visits to the bank branch, bank services used, and the period of maintaining the account were also investigated. Dependent variable By using the self-designated method, respondents were divided into local versus national bank customers. This method generated 252 local and 142 national bank customers. There were statistically significant differences between local and national bank customers on account type used, frequency of visits to the bank, duration of the account, and number of bank accounts held (see Table II). It is of considerable interest to test for differences in the evaluative constructs across certain geodemographic categories. The results obtained could be useful to bank managers in identifying and linking importance measures to commercial bank customer behavior and commercial bank choice. Independent variables Two sets of variables were used to profile the above described market segments. The first set was related to importance criteria, which included factors affecting local versus national bank choice (Table III). Respondents were asked to indicate on a five-point semantic differential scale what importance they placed on a series of factors in choosing a local versus national bank. The second set of questions was designed to generate data concerning perceived usefulness of the services provided by local and national banks to their customers (Table IV). Study findings Commercial bank selection criteria Table III presents a comparative profile of the two distinct market segments according to the importance different geodemographic segments placed on bank selection
Local bank customer (percent) (n ¼ 252)
National bank customer (percent) (n ¼ 142)
Total
Gender Male Female
57.4 69.3
42.6 30.7
176 218
Age Under 20 20-29 30-39 40-49 50-59 60 and above
56.6 61.2 69.6 83.7 50.0 66.7
43.4 38.8 30.4 16.3 50.0 33.3
83 98 92 43 42 36
Education Primary school Secondary school High school Vocational school University
67.9 71.4 60.5 59.4 68.5
32.1 28.6 39.5 40.6 31.5
28 49 124 101 92
Occupation Professional Administrative Tradesman-salesman Housewife Technical Craftsman Student Unemployed Other
78.8 36.6 63.9 62.1 62.5 73.1 70.7 86.7 56.8
21.2 63.4 36.1 37.9 37.5 26.9 29.3 13.3 43.2
33 41 61 58 56 52 41 15 37
Income Low Medium High
65.1 54.8 81.0
34.9 45.2 19.0
149 166 79
x2
Attitudes to commercial banks
5.962*
81 14.45*
3.744
23.49*
10.06*
Note: * Significant relationship for 0.01 significance level
criteria. The t-test was performed to test for the statistical significance of patronage factors between local and national bank customers. A mean score for the importance of each patronage factor was calculated. There were statistically significant differences between local and national bank customers on certain attributes. Lower service charges on checking accounts, lower interest charges on loans, promptness in correcting errors, accurate billing, courtesy of personnel and higher interest payments on saving accounts were more important for national bank customers, whereas fast and efficient service, available parking space nearby, external appearance of bank, mass media advertising, and interior comfort were mentioned as the most salient factors considered by local bank customers.
Table I. Demographic and socioeconomic characteristics of the sample
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Local bank customers (n ¼ 252) (percent)
National bank customers (n ¼ 142) (percent)
Total (n ¼ 394)
68.0 61.7 56.7 68.8
32.0 38.3 43.3 31.3
194 94 90 16
61.8 100.0 67.5
38.2 0.0 32.5
338 16 40
60.0 74.3
40.0 25.7
285 109
Frequency of visits to bank branch Daily 100.0 Two/three times a week 78.6 Once a week 64.5 Less than once a week 39.6 Once every two weeks 62.7 Once a month 57.1 Less than once a month 57.1
0.0 21.4 35.3 60.4 37.3 42.9 42.9
22 70 121 53 51 49 28
Bank service used Checking account Saving account Loans Travelers checks Mortgages Bill payment services Safety deposit boxes Saving plans
62.5 65.4 60.3 77.4 70.0 55.3 75.9 73.9
37.5 34.6 39.7 22.6 30.0 44.7 24.1 26.1
336 301 131 31 30 38 29 23
Period of bank account Less than two years Two to four years Four to six years Six and more years
43.9 68.0 67.4 66.7
56.1 32.0 32.6 33.3
57 125 86 126
Number of banks 1 2 3 More than 3
57.7 77.4 69.2 45.5
42.3 22.6 30.8 54.5
246 124 13 11
Bank type Commercial bank Saving bank Credit union Other Account type (a) Personal Business Both Account type (b) Single Joint
Table II. Banking characteristics of the sample of respondents
x2 3.486
9.896*
7.006*
34.096*
2.109 1.227 1.137 0.104 0.473 0.240 0.165 0.306 11.728*
15.686*
Note: * Significant relationship for 0.01 significance level
Usefulness of commercial bank services Table IV presents the perceived usefulness of several banking services by local and national bank customers. A five-point scale was used where 1 ¼ useless and 5 ¼ very useful. There were statistically significant differences between local and national bank customers in regards to ratings of the usefulness of selected banking services. Local
Factors affecting bank choice Accurate billing Location being near home or work Lower service charges on checking account Convenience and availability of ATM machines Fast and efficient service Hours of operation Lower interest charges on loans Promptness in correcting errors Convenience of bank branches Bank fees and charges Knowledgeable staff Friendliness of bank personnel Confidentiality of bank Professionalism of employees Higher interest payments on saving accounts Positive staff attitude on busy days/hours Employees timely responses to correspondence Availability of credit with favorable terms Overdraft privileges on checking accounts Courtesy of personnel Confidence in bank manager Bank reputation and its image Reception received at the bank A wide range of services offered Available parking space nearby Financial counselling and advisory services Counter partitions in bank Recommendation of friends or relatives Interior comfort External appearance of bank Mass media advertising
National bank Local bank customers customers Mean SD Mean SD 4.51 4.52 4.16 5.62 4.77 4.49 4.55 4.43 4.59 4.68 4.66 4.65 4.58 4.63 4.26 4.55 4.75 4.44 4.58 4.19 4.38 4.39 4.43 4.33 4.18 4.08 3.68 3.62 3.69 3.54 2.88
0.95 1.06 1.27 0.77 0.72 0.99 0.97 1.08 0.89 0.88 0.78 0.80 0.92 0.86 1.21 0.92 0.78 1.09 0.93 1.25 1.11 1.10 1.02 1.09 1.20 1.32 1.47 1.35 1.43 1.54 1.41
4.90 4.61 4.79 4.52 4.61 4.36 4.74 4.68 4.73 4.77 4.68 4.71 4.68 4.74 4.63 4.66 4.57 4.57 4.60 4.51 4.35 4.32 4.29 4.23 3.93 3.85 3.61 3.69 3.36 3.24 2.54
0.48 0.96 0.56 0.94 0.70 1.01 0.60 0.88 0.70 0.72 0.63 0.54 0.78 0.64 0.89 0.63 0.94 0.85 0.82 0.93 1.06 1.13 1.09 1.15 1.34 1.44 1.51 1.45 1.55 1.51 1.52
t value Significance, p 24.567 20.947 25.616 1.160 2.005 1.264 22.074 22.403 21.701 21.050 20.268 20.797 21.174 21.395 23.145 21.189 1.968 21.231 20.017 22.667 0.242 0.641 1.237 0.855 1.969 1.569 0.449 20.506 2.148 1.870 2.181
0.000 0.344 0.000 0.247 0.036 0.207 0.030 0.017 0.090 0.295 0.789 0.426 0.241 0.164 0.002 0.235 0.050 0.219 0.986 0.008 0.809 0.522 0.217 0.393 0.049 0.117 0.654 0.613 0.032 0.046 0.030
bank customers rated the usefulness of automatic teller machines, loans with favorable rates, mortgages with favorable rates, bill payment services, credit cards offered, banking by phone, offering securities, online banking, consumer complaints handling procedures, and banking by mail higher than national bank customers. Factors affecting the choice of a commercial bank It was hypothesized that a distinct set of evaluative constructs could be developed by using the factor analysis technique (Sinkula and Lawtor, 1988). The evaluative constructs utilized in this research are based on past bank marketing literature. The data was further analyzed by using a set of 25 importance criteria. The principal components method for an initial factor extraction with a criterion eigenvalue greater than one and a Varimax rotation matrix method was applied. Sample size is an element that can affect the adequacy of the factor models. It has been suggested (Hayes, 1992) that the sample size should be equal to at least ten times the number of variables: for
Attitudes to commercial banks 83
Table III. Factors considered in choosing local versus national commercial bank
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Table IV. Perceived usefulness of bank services among local and national bank customers
Local bank customers Mean SD Automatic teller machines Loans with favorable rates Offering saving plans Counter service On line banking services Mortgages with favorable rates Bill payment services Credit cards Banking by phone Money orders Offering securities Safety deposit boxes Consumer complaint handling procedures Traveller’s cheque EFTPOS services Banking by mail Night depository Foreign exchange
4.55 4.42 4.20 4.15 4.28 4.27 4.05 4.02 4.04 3.83 3.85 3.75 3.27 3.57 3.56 3.57 3.32 3.12
0.87 0.98 0.89 0.98 0.91 1.10 0.97 1.04 1.15 1.17 1.28 1.12 1.23 1.14 1.04 1.24 1.01 1.29
National bank customers Mean SD 4.29 4.15 4.17 4.12 3.87 4.01 3.85 3.81 3.63 3.81 3.54 3.61 3.38 3.39 3.37 3.31 3.26 3.15
1.08 1.05 0.96 1.06 1.15 1.21 1.19 1.16 1.38 1.10 1.40 1.18 1.28 1.21 1.08 1.41 1.06 1.55
t value
Significance, p
2.598 2.470 0.347 0.331 3.854 2.222 1.873 1.879 3.148 0.195 2.209 1.182 2.976 1.504 1.695 1.912 0.563 2 0.225
0.010 0.014 0.729 0.741 0.000 0.027 0.052 0.051 0.002 0.846 0.028 0.238 0.003 0.133 0.093 0.057 0.574 0.822
large numbers of variables, the proportion is decreased to five. In similar studies, sample sizes of approximately 200 were chosen (Parasuraman and Varadarajan, 1988). The sample size in this survey was 394. All the items were first factor analyzed. Rotated factor loadings were examined assuming different numbers of factors for extraction. The results showed considerable improvement over the previous attempt, as some meaningful patterns emerged. It was discovered that there are six different salient constructs which impinge on choosing a commercial bank. Table V depicts the sorted rotated factor loadings for the items based on a six-factor extraction. The total figure of 68.70 percent represents the percentage of variance of all 25 items explained by the six factors. Before carrying out factor analyses, a reliability analysis for each scale was run through Cronbach’s a. “Attitudes of bank employees”, “Confidence in bank”, and “Bank services charges” were measured through a five-item scale that proved to be very reliable (a ¼ 0:83, 0.82, 0.80). The item with the higher factor loading for the first factor was “Positive staff attitudes on busy days” (load ¼ 0:82). All other factor loadings can be followed in Table V. A six-factor solution was extracted. These six underlying dimensions are based on measures of importance. As such, they are of value for any commercial bank manager, either national or local, to discern the areas upon which they are being evaluated by their bank customers. A mean rating score for the importance of six factors is calculated for bank customers who primarily patronize local banks versus customers who mostly patronize national banks. In Table VI, the two groups differed significantly on the importance they attached to bank service charges (factor 2) and to confidence in the bank (factor 4). National bank customers give relatively more importance to bank service charges and confidence in the bank factors in choosing a commercial bank than local bank customers. Furthermore, certain banks could be
Factor load Percentage of variance Cronbach’s a Factor 1. Attitudes of bank employees Positive staff attitude on busy days Knowledgeable staff Reception received at the bank Friendliness of bank personnel Professionalism of employees Courtesy of personnel Confidence in bank manager Employees’ timely responses to correspondence
0.80 0.69 0.66 0.64 0.62 0.57 0.55 0.47
17.218
Factor 2. Bank service charges Lower service charges on checking account Lower interest charges on loans Bank fees and charges Fast and efficient service
0.78 0.76 0.70 0.62
Factor 3. Extra services offered by the bank Overdraft privileges on checking accounts Financial counseling and advisory services A wide range of services offered Hours of operation
0.80 0.79 0.58 0.55
Factor 4. Confidence in the bank Confidentiality of bank Promptness in correcting errors Accurate billing
0.81 0.65 0.53
Factor 5. Positive bank image Interior comfort Bank reputation and its image Recommendation of friends or relatives
0.76 0.66 0.50
Factor 6. Convenience orientation Location being near home or work Available parking space nearby Convenience and availability of ATM machines
0.69 0.59 0.52
0.83
Attitudes to commercial banks 85
12.533
0.80
10.898
0.74
10.623
0.82
9.211
0.62
7.530
0.69
identified as attracting customers who view convenience as more important in their eventual choice of a bank. In this study, no significant difference was established between local and national bank customers on this point.
Discussion and implications The purposes of this study were to delineate the most salient bank patronage attributes considered in choosing a national versus local commercial bank and to determine the perceived usefulness of several banking services to commercial bank users in rural Pennsylvania, USA. Several implications can be drawn for the executives of banking institutions who are determined to make their marketing efforts more efficient and productive.
Table V. Factors considered in choosing a commercial bank
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Table VI. Relative importance of factors in choosing a commercial bank
Customer type
Mean
t-test for equality of means
Significance (two-tailed)
Attitudes of bank employees Local 4.529 National 4.564
Factor 1
20.580
0.562
Bank service charges Local 4.540 National 4.729
Factor 2
22.876
0.004
Extra services offered by the bank Local 4.369 Factor 3 National 4.255
1.334
0.183
Confidence in the bank Local 4.504 National 4.755
Factor 4
23.313
0.001
Positive bank image Local 3.899 National 3.788
Factor 5
1.056
0.292
Convenience orientation Local 4.440 National 4.353
Factor 6
1.025
0.306
Several distinct differences emerged between the geodemographic profiles of local and national bank customers. Local bank customers are predominantly female, younger, college graduates, high-income earners, and holders of professional jobs. Local banks must design their portfolio of products and services in consideration of these distinct customer characteristics. For instance, in one agricultural town in the study area which has very large farming communities, a local bank developed and geared its banking services exclusively to farmers’ financial needs and different service expectations. The high ranking of fast and efficient service by local bank customers suggests that the local banks’ management need to place a higher emphasis on personal training. Second, it should focus on increasing the efficiency of completing banking transactions. As a result, internal comfort, sufficient parking space, and external appearance of the bank were three factors that were emphasized by local bank customers more often than national bank customers. Pennsylvania local banks must also focus exclusively on the interior and exterior physical appearance of the banks. Also, in an effort to differentiate themselves and create a distinct image in the mind of local area bank customers, local banks must allocate some of their marketing funds to local branch office promotion and institutional advertising. To this end, targeted promotions and direct marketing efforts would be most desirable. Local bank managers can also embark upon a strategy of targeting specific customer groups in a locality with specific education, occupation, or income levels to improve the quality of its services in the eyes of its local area customers (Jamal and Naser, 2002). In today’s competitive commercial banking market, it is imperative that commercial banks of all sizes develop the ability to determine the most critical bank selection criteria for the geodemographic segments of the Pennsylvania banking market they wish to attract and serve.
The perceived usefulness of local versus national banking services indicate that banks should follow market niche strategies where only those services which are of paramount importance to local area customers must be offered. Furthermore, the product/service development efforts of local banks must be in harmony with the existing and would be banking needs of the local area bank customers. In particular, local bank managers who recognize the importance of geodemographic segmentation and bank service positioning would be interested in knowing and studying available geodemographic segments. In doing so, they will develop specialized formats, promotional/communication plans and programs as well as service merchandising strategies to meet the ever-increasing needs of emerging market segments. Conclusions and recommendations This study, conducted in semi-urban Pennsylvania, indicates that commercial bank managers can utilize the evaluative criteria used by bank customers in selecting a commercial bank to patronize. The six evaluative constructs extracted from importance measures can be used to explain customers’ commercial bank choices. Commercial banks’ efforts to attract or retain existing customers should focus on the following issues: . behavior of bank employees; . bank service charges; . extra services offered by the bank; . confidence in the bank; . positive bank image; and . convenience. Managing service quality in a commercial bank is rather challenging because so much depends on how well the bank employees (internal customers) respond to the needs and expectations of the customers. Bank customers, in most cases, evaluate commercial banks on the bank employee dimension when they place a heavy emphasis on positive staff attitude, knowledgeable staff, friendliness of bank personnel, employee professionalism, courtesy of personnel, and timely employee responses to correspondence. All of these underlying factors indicate the effectiveness of internal customers in their relationship with external customers. No statistically significant differences were observed between national and local banks on this. A statistically significant difference emerged between local and national banks in the bank customers’ evaluation of bank service charges. It was discovered that national banks were found to be more attractive in the areas of offering lower service charges on checking accounts, lower interest charges on loans, lower bank fees and charges and delivering fast and efficient service. In a similar fashion, the study findings indicated that commercial bank customers maintained a higher confidence level in national banks over local banks. In particular, confidentiality of the bank, promptness in correcting errors, and providing accurate billing were the factors mentioned in favor of national banks. Although no statistically significant differences were detected between national and local banks in the areas of extra services offered by the bank, positive bank image, and convenience, in all three areas the local banks performed better than national banks. In their effort to remain competitive, local banks should emphasize these attributes in their promotional campaigns. At an operational level, by using their distinct
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competencies they can not only attract new customers but retain current customers. As the survey results indicated, commercial bank customers in rural Pennsylvania have well developed opinions about the bank service attributes that are important to them. The onus is on the commercial banks themselves to perform the desirable attributes well. Effective bank performance in these desirable attributes will determine not only the position of a commercial bank, but also its overall image and customer base.
88 Study limitations This empirical research study examined Pennsylvanian bank customers’ attitudes toward commercial banks by use of geodemographic segmentation. In particular, the behavioral tendencies of local and national bank customers were investigated. This is a static study which examined bank patronizing behavior in one specific time period. Additional studies of thelongitudinal type may bring more insightful information. In addition to studying the behavior of commercial bank customers, one can also look at the behavior of corporate customers to see if there are different underlying segmentation dimensions. Last, the selection of a more representative sample from Pennsylvania would bring more illuminating and comprehensive database forward for better and well informed bank marketing decision making.
Further research avenues Further research is needed in this important but neglected area of bank marketing. Psychographic analysis blended with geodemographic analysis of local and national bank customers would offer important marketing strategy guidelines for bank marketers. It is believed that a psychographic analysis that embraces hidden inner value systems and abstract meanings to which bank customers attach value by customers of two different banks will be very timely and insightful. Also, personality traits, attitudes, interests, needs, and opinions of bank customers, whether local or national, “can put flesh on demographic and socioeconomic bones”. Such insights into bank customers’ self-images and other measurable characteristics may be helpful in attaining greater precision when targeting marketing policies and strategies. The results of this study may highlight a number of additional directions for future bank marketing research. These important future research areas may be listed as follows: . regional segmentation studies in commercial banking across a number of similar regions of the USA and/or comparison of Pennsylvania with other states within the USA, Canada, and Anglo-Saxon countries of Europe; . identification of different ethnic, cultural, and sub-cultural groups within North America and Europe for the development of effective commercial bank target market approaches; . positioning of commercial bank services in different geodemographic localities within Pennsylvania as well as other states; . development of region/area based portfolio of bank services by use of clustering analysis techniques; and . making better bank site selection decisions through the of the geodemographic market clusters identified.
References Bolton, R.N. and Drew, J.H. (1991), “A multistage model of customers’ assessments of service quality and value”, Journal of Consumer Research, Vol. 17 No. 4, pp. 375-85. Carman, J.M. (1990), “Consumer perceptions of service quality: an assessment”, Journal of Retailing, Vol. 66 No. 1, pp. 33-46. Cohen, E. (1998), “How to target smarter”, Target Marketing, Vol. 21 No. 5, pp. 58-60. Hayes, B.E. (1992), Measuring Customer Satisfaction, ASQC, Milwaukee, WI. Holstius, K. and Kaynak, E. (1995), “Retail banking in Nordic countries: the case of Finland”, International Journal of Bank Marketing, Vol. 13 No. 8, pp. 10-21. Jamal, A. and Naser, K. (2002), “Customer satisfaction and retail banking: an assessment of some of the key antecedents of customer satisfaction in retail banking”, International Journal of Bank Marketing, Vol. 20 No. 4/5, pp. 146-60. Kaynak, E. (1986), “Globalization of banks: an integrative statement”, International Journal of Bank Marketing, Vol. 4 No. 3, pp. 3-8. Khazeh, K. and Decker, W.H. (1993), “How customers choose banks”, Journal of Retail Banking, Vol. 14 No. 4, pp. 41-4. Kotler, P. (2003), Marketing Management, 11th ed., Prentice-Hall, Englewood Cliffs, NJ. Kysar, D.A. (2002), “Kids & cul-de-sacs: Census 2000 and the reproduction of consumer culture”, Cornell Law Review, Vol. 87 No. 3, pp. 853-900. Laurino, J.A. (1993), “Developing your own niche”, Bank Marketing, Vol. 25 No. 7, pp. 30-2. Lewis Prewitt, N. (1991), “Case studies: four bank stories: quality service in action”, Bank Marketing, Vol. 23 No. 4, p. 60. McCormick, J.M., McMahon, S.P. and Kuenne, C.B. (1996), “Marketing excellence”, Bank Strategies, September/October, pp. 46-52. Michman, R.D., Mazze, E.M. and Greco, A.J. (2003), Life Style Marketing: Reaching the New American Consumer, Praeger, Westport, CT. Mitchell, S. (1997), “Parallel universes: Experian sorts the global population into geo-demographic clusters”, Marketing Tools, Vol. 4 No. 10, pp. 14-17. Parasuraman, A. and Varadarajan, R.R. (1988), “Robustness of ordinal measures of competitive strategy variables emplyed in business research: a PIMS data-based analysis”, Journal of Business Research, Vol. 17 No. 1, pp. 101-14. Parasuraman, A., Berry, L.L. and Zeithaml, V.A. (1991), “Perceived service quality as a customerbased performance measure: an empirical examination of organizational barriers using an extended service quality model”, Human Resource Management, Vol. 30 No. 3, pp. 335-65. Peter, J.P. and Donelly, J.H. (2004), Marketing Management: Knowledge and Skills, 7th ed., McGraw-Hill/Irwin, New York, NY. Sinkula, J.M. and Lawtor, L. (1988), “Bank characteristics and consumer bank choice: how important are importance measures”, Journal of Professional Services Marketing, Vol. 3 No. 3/4, pp. 131-41. Teas, R.K. and Wong, J. (1991), “Measurement of customer perceptions of the retail bank service delivery system”, Journal of Professional Services Marketing, Vol. 7 No. 1, pp. 147-68.
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Product development in UK retail banking Developing a market-oriented approach in a rapidly changing regulatory environment David J. Slattery and Joseph G. Nellis
Received January 2004 Revised April 2004; May 2004 Accepted June 2004
School of Management, Cranfield University, Cranfield, UK Abstract Purpose – The paper examines how product innovation in the UK banking industry has been affected and is likely to be affected by changes in regulation and in government policy. It considers the issues faced by banks in pursuing a market-oriented approach in this environment. Design/methodology/approach – The rapidly changing regulatory environment in the UK is described and analysed, primarily in the context of the market for mortgage products and medium- to long-term savings products. The paper describes the main events of the last 20 years and analyse their immediate impacts. The paper examines the most recent changes, identify the direction of policy change and consider the implications. Findings – Empirical evidence suggests that the development of mortgage and pensions products has been closely linked to changes in regulation and government policy. This has resulted in an adverse impact on the brand values and reputations of banks. An analysis of the most recent events identifies two different regulatory approaches which banks now have to manage. Research limitations/implications – A review of the literature shows that very little detailed research has been carried out into the impact of regulation and government policy on banks and financial services companies. Practical implications – With this lack of systematic research and analysis, and in the absence of a theoretical framework, it is difficult for banks, regulators and government to make informed decisions. Originality/value – The paper highlights and analyses an increasingly important issue which has not been addressed in any detail in the literature. The paper puts forward an agenda of research questions and propositions for further research. Keywords Banking, United Kingdom, Regulation, Product development, Market orientation Paper type General review
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 90-106 q Emerald Group Publishing Limited 0265-2323 DOI 10.1108/02652320510577384
Drivers of change in financial services The European financial services industry has undergone substantial change over the last two decades. The driving forces have been the development of the European Union (EU) Single Market Programme, the integration and globalisation of financial markets, innovation in products and services, and innovation in their delivery through information technology (Nellis et al., 2000; Taylor, 1999). Central to these forces has been widespread deregulation, which has resulted in three major developments within financial services: (1) extensive elimination of restrictions on competition facilitating entry into the industry;
(2) the relaxation of the limitations on the scale and scope of products and services, allowing the combination of banking, insurance and securities activities within a single firm, and; (3) the harmonisation of prudential regulation across national boundaries. Detailed assessments of these developments and their implications are reported by Trethowan and Scullion (1997), and by Flier et al. (2001). Today, the European financial services industry (and in particular the European banking industry) faces an unprecedented degree of competition, which has led to fundamental changes in the industry’s structure, conduct and performance. Retail banking is now a commodity service in many respects, with consumers becoming ever more discerning and price-conscious and less loyal to particular providers. Banks across the EU have responded by: . seeking to achieve greater economies of scale through growth and diversification, leading to consolidation in the industry and the emergence of the universal banking model – so called “bancassurance” or “alfinanz” (Nellis et al., 2000); and . increasingly relying on new product development (NPD) for growth and profitability (Alam, 2003). Developing a market-oriented approach to NPD Alam (2003) points out that NPD is a high-risk venture because most new products fail. For example, the failure rate in the financial services industry alone is as high as 50 per cent (Cooper and Edgett, 1996). There is evidence, however, that a market-oriented approach to NPD is related positively to product advantage and to proficiency in product launch, which in turn are related positively to new product performance (Langerak et al., 2004). Market-oriented businesses seek to understand customers’ expressed and latent needs, and develop superior solutions to those needs (Slater and Narver, 1999). Latent needs are current needs, but they are impossible for buyers to articulate. Reacting to customers’ expressed needs is usually inadequate for the creation of competitive advantage. Customer-led businesses focus on buyers’ expressed needs only. The result, typically, is price competition as all sellers are providing the same set of benefits. A market-oriented seller, however, will seek to discover customers’ latent needs and thereby offer an augmented product (i.e. superior benefits) that differentiates the seller and insulates it in part or in whole from price competition. Developing a market-oriented approach to NPD in a rapidly changing regulatory environment Despite the deregulation in Europe referred to above, financial services remains a highly regulated industry. Over the last few years a range of new regulations has been imposed by the EU and by national governments, increasing the burdens on the industry. These regulations cover diverse fields such as: . the management of risk and the determination of the level of reserves; . the conduct of business with retail customers; . the prevention of money laundering; and . the reporting of financial performance.
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The impact of these changes has been illustrated in a recent study by the Institute of Financial Services (2004). The impact of new regulations on compliance costs is clearly identified but the study concludes that the impact on competitiveness is not as well understood by the industry as it could be. The way firms deal with regulatory change is now a key competitive issue. Mahon and Murray (1981) examine the critical differences found in regulated environments that affect strategic planning. Since many of the traditional market and competitive factors are weakened in a regulated environment, and because of the influence and impact of the regulatory agency, the focus of organisational planning and action shifts from the consumers or customers to the regulatory body itself. Mahon and Murray (1981) put forward the proposition that as the environment in which the firm operates becomes more regulated, the firm will focus less on the customer and more on the regulatory agency. This raises the question of whether banks can and will adopt a market-oriented approach to NPD in today’s highly regulated environment. Purpose and structure of this paper Some of the most fundamental changes in the regulatory environment have been seen in the UK. The purpose of this paper is to examine how product innovation in the UK banking industry has been affected by and is likely to be affected by changes in the regulatory environment and by changes in government policy. We consider in particular the issues faced by banks in pursuing a market-oriented approach to ensure the success of their new product development while satisfying the demands of regulators and government. We first describe the changes to the regulatory regime and related government policies that have taken place in the UK over the last 20 years and then analyse their immediate impact. We examine particular empirical evidence of the development of pension and mortgage products, which suggests a causal link with changes in regulatory and government policy. This is followed by a description and analysis of the most recent regulatory developments. We discuss the direction of regulatory policy and the implications for banks, and consider whether the requirements of the regulators and government are aligned with those of a market-oriented approach to product development. We assess the challenges and prospects for key stakeholders in the UK financial services industry before finally putting forward an agenda for future research into the impact of regulation and government policy on the development of financial products. Chronology of deregulation and re-regulation in the UK The UK was the first European country to pursue extensive deregulation of financial services (Flier et al., 2001). The Conservative Government (under Margaret Thatcher) led the way with the abolition of foreign exchange controls in 1979, the ending of the mortgage interest rate cartel in 1984, and a raft of other reforms of the financial sector culminating in the 1986 Financial Services Act, the 1986 Building Societies Act, and the 1987 Banking Act. The political ideology behind these changes was a belief in free markets, increased competition, a limited role for government and the pursuit of greater choice for consumers. Rules restricting the business which financial services companies in general could transact, so-called “allowable business rules”, were relaxed to increase product and service competition. New rules, commonly called “conduct of
business rules”, were introduced to protect the consumer, but the industry was to be largely self-regulating. The implementation of these rules in 1987 resulted in the so-called “big bang” across the UK financial services industry. In 1994 the enforcement of the conduct of business rules was tightened as a result of the pensions mis-selling scandal (see below), and in this respect the UK now has one of the most detailed and prescriptive regimes in the world, while allowable business rules continue to be the most liberal (Llewellyn, 2000). To enforce this new regime, the new Labour government of 1997 (under Tony Blair) announced reforms concerning the structure of regulation, bringing ten diverse self-regulating bodies under one new statutory regulator, namely the Financial Services Authority (FSA). Other government policy changes relevant to financial product development Alongside these seismic changes in the regulatory framework of financial services, various employment and pensions laws were reformed by the Social Securities Acts of 1985 and 1986 to provide choice to long-term retirement savers. The main intention was to allow employees to opt out of occupational pension schemes and the state earnings-related pension scheme (SERPS) so that they could set up their own personal pensions from their chosen own pension provider. In addition, there were a number of changes in government fiscal policy, and in particular, changes in the tax breaks allowed for mortgages, pensions and savings products. The most relevant changes were as follows: . In 1983, the UK Treasury changed the way tax relief was given on payment of mortgage interest by homeowners, giving tax rebates automatically in a scheme called “Mortgage Interest Relief at Source” (MIRAS). This was, however, phased out over the period 1991-2000, with steadily reducing rebates and corresponding increases in interest costs to borrowers. No tax relief is now given on mortgage interest to homeowners. . In 1987, people opting out of SERPS were allowed a rebate on their National Insurance contributions (NICs) if they took out an appropriate personal pension (APP). . Also in 1987, the UK Treasury introduced tax incentives for medium-term savings in the form of tax exempt savings accounts (TESSAs) and personal equity plans (PEPs). In 1998, these schemes were replaced by individual savings accounts (ISAs). . In 1997, the Treasury removed tax relief on dividends received by pension funds, worth around £5 billion per annum. The chronology of the changes outlined above is summarised in Table I. Impact of change in regulation and government policy on product development The range of measures introduced by successive governments over the past two decades have had profound implications for product development across the UK financial services sector. We focus here on two particular aspects: pensions products and mortgage products.
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Date 1979 1983
94
1984 1985 and 1986 1986 and 1987 1987 1987 1987 1991-2000 1994 1997
Table I. Chronology of regulatory changes and government policy changes in the UK, 1979-2000
1997 1998
Nature of reform
Purpose of reform
Abolition of foreign exchange controls To promote the free movement of capital internationally Introduction of Mortgage Interest To improve the administration of the Relief at Source (MIRAS) existing tax breaks Abolition of the mortgage interest rate To increase competition in the cartel mortgage market Changes to employment and pensions To provide greater consumer choice in law the pensions market Changes to building societies and To increase competition and consumer banking regulations protection To increase competition and consumer “Big bang” – implementation of the new regulatory regime of the Financial protection Services Act To help promote personal pensions and Introduction of National Insurance reduce the government’s pension contribution (NIC) rebates for those obligations opting out of SERPS To create incentives for medium term Introduction of tax exempt savings savings accounts (TESSAs) and personal equity plans (PEPs) Phasing out of MIRAS To rationalise the tax system and allow reductions in the basic rate of tax Tightening of Conduct of Business Regulator’s response to pensions Rules mis-selling scandal Merger of self-regulating bodies to To strengthen the regulation of form the new FSA financial services Removal of tax relief on dividends To raise government revenue received by pension funds Reform by a new government of Replacement of TESSAs and PEPs incentives for medium-term saving with individual savings accounts (ISAs)
Pensions products The regulatory and government policy changes which took effect in 1987 had an immediate impact on the long-term savings market. New pensions products were developed to serve new consumer segments. These were promoted aggressively by both the financial services industry and by government itself. Between 1987 and 1993, over five million people switched out of SERPS into new APP products. The pattern of sales and terminations is shown in Figure 1. As Figure 1 shows, there was an immediate surge in new product sales in 1987/1998 which quickly died away. Since 1993/1994 the number of new APP sales has barely exceeded terminations. The problem was that many of those opting out of SERPS also opted out of their employer’s scheme, which was rarely advantageous to the employee as the employee loses the employer’s contributions and other benefits. In the early 1990s these developments attracted the attention of regulators and led to widespread allegations of mis-selling. By 1994, the regulators had the evidence they believed they needed and they required pension providers to review all personal pension sales between April 1998 and June 1994. This review has only recently been concluded, with devastating impacts on product providers and distributors. Over
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Figure 1. New sales of Appropriate Personal Pensions (APPs) and terminations
1.7 million customers were found to have been sold products which were not suitable for their needs, and were awarded around £12 billion in compensation, paid wholly by the financial services industry. In addition, administration costs have been estimated at £2 billion and hundreds of firms have been fined a total of £11 million by the regulators (Financial Services Authority, 2002). The above data suggest that there is a close correlation between the sales of personal pension products on the one hand and changes in government policy and action by the regulatory authorities on the other. It may indeed be concluded that the government itself created the environment in which pensions mis-selling took place. However, it was the banks and financial services companies that mis-sold the products through sales representatives remunerated with commission. This commission-based selling process creates a potential conflict of interest for the seller, who has a duty to the customer to provide best advice. Mortgage products Until 1983, most mortgages sold in the UK were repayment mortgages, where the house-owner pays each month a mixture of interest and capital, with reducing interest and increasing capital repayments during the term, leading to the full repayment of the capital. The other main type of mortgage was the endowment mortgage, where the house-owner pays interest only to the lender, and insurance premiums into a life endowment policy, which accumulates to pay off the capital of the loan. However, the mix of these two products has changed dramatically since 1983 as shown in Figure 2.
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Figure 2. Split of new mortgages between repayment and endowment types
As can be seen, the change in the pattern of sales appears to be closely correlated with changes in government policy and regulatory action. The introduction of MIRAS in 1983 made endowment mortgages more financially attractive, and in that year alone endowment mortgages overtook repayment mortgages in terms of the volume of sales. Inevitably, however, the phasing out of this tax incentive led to a steady reversal of the trend. Arguably, the introduction in 1987 and the tightening in 1994 of the conduct of business rules, which applied to endowment mortgages but not to repayment mortgages, contributed to the change as this increased the cost of selling endowment products. The sale of endowment mortgages peaked in 1988, and by 1996 repayment mortgages were again outselling endowment mortgages. However, this boom in endowment mortgage sales has now rebounded on the industry. The fall in equity markets in 2000 following the reduction in inflation and interest rates in the 1990s has led to endowment policies yielding much less than the projections at the time of sale. Many policies are not now expected to yield sufficient returns to pay off the capital of many home-owners’ mortgage debt. Again, the spectre of mis-selling hangs over the industry, as it is alleged that customers were not warned about the risks, and indeed were assured by sales representatives that policies would both cover the debt and provide a cash bonus. The FSA reports that up to December 2003, over 500,000 customers have been awarded over £850 million in compensation from financial services companies. As at the end of 2003, there are estimated to be about 6.8 million endowment mortgage policies in force which are still being relied upon to repay mortgages (Financial Services Authority, 2004). The shortfall is estimated at around £30 billion, and customers are being encouraged by regulators to
complain if they believe they have been mis-sold products. However, mortgage customers have benefited from substantial reductions in interest rates during the 1990s, and it has been calculated by the Association of British Insurers (2003) that customers need only save part of their reduction in their monthly interest payments to make up the shortfall – in other words, they are still financially better off. However, this will not affect customers’ entitlement to compensation if they were previously not warned about the risks inherent in the endowment product. As with the pensions mis-selling scandal, it could be argued that the environment for the explosion in endowment mortgage sales was created by the government. But it is the industry alone that ends up paying compensation and suffering damage to its reputation. There is currently considerable criticism of the industry by the regulators, by politicians, by consumer groups and by the media. In December 2003 the FSA accused banking chief executives of continuing to cause harm to consumers (Financial Services Authority, 2003a). In March 2004, the Treasury Select Committee of the House of Commons issued a report accusing the industry of causing a scandal (Treasury Select Committee, 2004). These events are featured prominently in the media. Conclusions from the empirical evidence It can be seen from the history of the last 20 years that the development of pension and mortgage products has been heavily influenced by regulatory and government policy changes. It is also apparent that the development and sale of new products which attempt to exploit changes in government policy pose significant risks for companies, both in financial terms and to companies’ reputations and brand values. However, changes to the regulatory and fiscal environment are continuing, and indeed accelerating. We therefore now describe the latest developments. New developments in regulation Since 1997, while the merger of the various UK regulatory bodies to create the new FSA has been taking shape, the FSA has initiated a number of reviews of the detailed rules within the regulatory regime. Its approach to conduct of business regulation is described below. At the same time, the UK Treasury has initiated a series of reviews dealing with various aspects of the financial services industry. The significance of the main Treasury-sponsored reviews are described later in this paper. The Treasury has also taken action to promote its own standards for products, known as “CAT” (cost, access and terms) standards and “stakeholder” products. The CAT standards were first applied to the government’s new individual savings accounts (ISAs), launched in 1998. The standards are voluntary, but providers whose products do not meet them are required to say so in their advertising. The term “stakeholder” was first applied in the context of pensions and, most significantly for providers, charges are limited to an annual fee of 1 per cent of funds under management. Thus, banks and financial services companies are faced with an array of government initiatives and regulatory changes, with differing objectives. Littler and Hudson (2003) point out that the many reviews initiated by both the FSA and by the Treasury constitute a multiple and apparently fragmented review approach to devising a new regulatory framework. This is leading to industry players taking strategic decisions under increased uncertainty. Five emerging themes affecting
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product distribution have been identified by Littler and Hudson (2003). These are concerned with the following: (1) the output diversity of product manufacturers; (2) the radical reshaping of the tied distribution sector; (3) the form of remuneration for independent financial advice; (4) pressure to develop radically simplified products distributed via a simplified advice regime; and (5) a reduction in the distinction between distribution channels for various types of products. Another way of viewing the latest developments in the regulatory regime is to see these as two separate emerging regulatory approaches. On the one hand it is clear that the FSA is concerned primarily with regulating the sales process of product providers and distributors – i.e. the conduct of business with customers. In contrast, the UK Treasury seems to be moving its focus more towards regulating the nature and cost of products – i.e. the design features of financial products and their costs to consumers. In essence, the UK financial services industry now finds itself subject to two regulatory forces coming from different directions. These must be seen in the context of the political pressure and media attention focused on the industry, as mentioned above. The pressures on banks and financial services companies are highlighted in Figure 3. The two regulatory forces are discussed in turn below in order to assess the implications for future banking strategies, product rationalisation and innovation. The FSA approach to conduct of business The FSA is the single regulator in the UK for banks and financial services companies following the merger of ten former bodies. It is a statutory body now governed by the 2000 Financial Services and Markets Act. The UK Treasury appoints its board, which in turn sets overall policy, but day-to-day decisions are the responsibility of the Executive. The FSA describes itself as an independent non-governmental body, which signals that it wishes to be seen to be independent of government ministers. The FSA has four statutory objectives concerned with: (1) maintaining confidence in the financial system; (2) promoting public understanding of the system;
Figure 3. Regulatory pressures in the UK
(3) securing the appropriate degree of protection for consumers; and (4) reducing financial crime. In carrying out these objectives it is guided by a number of regulatory principles, including: . being proportionate in imposing burdens or restrictions on the industry; . facilitating innovation; and . not impeding or distorting competition unnecessarily (Financial Services Authority, 2003b). Recently the FSA has set out its policy and approach to regulation (Financial Services Authority, 2003c). In particular, the regulatory approach adopted by the FSA puts the retail customer at the centre of its work. One of the FSA’s principal aims is to allow the retail customer to obtain a “fair deal”. However, the FSA wants to do this through a competitive and efficient market where regulation is unobtrusive or even unnecessary. It seeks to harness the positive forces in competitive markets. In other words: “markets where possible, regulation when necessary”. The FSA has indicated that, when supervising and regulating banks, it will place a new emphasis on the way that customers are treated. Importantly, it has stressed that where companies fail to meet their obligations, it will use its enforcement powers actively (Financial Services Authority, 2003a). The FSA regards the most effective form of regulation as “pre-emptive”, in the sense that it seeks to ensure that customers are made fully aware of any risks of new products in advance of these products being marketed and purchased. To this end, it is developing a “product risk framework”, which is a tool to assess the risks to consumers of different products being launched or marketed by firms. At the same time the FSA is keen to emphasise that this approach does not represent direct product regulation “through the back door” – the FSA, it says (rightly), does not have a role to play in the provision of products. It justifies its approach in terms of protecting and educating consumers. Also the FSA is not interested in controlling the prices of products and services in the marketplace. The FSA is keen to achieve a balance between the rights and duties of product providers to develop new and innovative products, and the rights and duties of consumers to understand how the products they purchase meet their needs in a way that offers good value for money. In this context it is worth noting that the FSA is soon to introduce a new regulatory regime for mortgage lending. The perceived need for this new regime arises from concerns about consumer protection in the mortgage market, particularly after the endowment mortgage mis-selling episode. The market is regarded as a confusing one for consumers, with over 8,000 different products, each with a plethora of features. Also there are widespread concerns about the level of consumer debt and the lack of understanding by consumers of the risks attached to this debt. To reduce confusion and ensure consumers have sufficient information, new rules are to be introduced in the near future requiring the explicit disclosure by providers of information about product features and risks. The new regulations require that advertising must be “clear, fair and not misleading”. The FSA expects senior managers to take responsibility for the product design and marketing process. Treating customers fairly should lie at the heart of their marketing strategy.
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The Treasury approach to the nature and cost of products The approach of the FSA set out above is, as we have stressed, focused on the conduct of business by financial institutions. We now set out the Treasury approach, which can be best understood in the context of its promotion of CAT standards and stakeholder pensions mentioned earlier, and in the context of four reviews it has initiated. The Treasury approach can be seen as one which is moving steadily towards a focus on the design and costs of products rather than the behaviour of product providers as such. We set out the main findings from each of these four reviews. The Cruickshank review: Competition in UK Banking (March 2000). The terms of reference for this review, as specified by the Treasury, were to examine the levels of product innovation, competition and efficiency in various sub-markets of the UK banking industry. The report was published in March 2000 (Cruickshank, 2000). The report noted that banks were treated differently from other sectors of the economy in many respects. Three particular features of the industry were identified: (1) entry barriers are high; (2) banks’ exposure to competition law is diluted; and (3) in many areas banks are allowed to write their own rules. The report concluded that the essential first step towards increased competition in banking services is therefore to develop a new policy framework for the relationship between government and the industry. The review found that competition was not effective in the three main groups of markets, i.e. money transmission, services to personal customers and services to small and medium enterprises (SMEs). It may be noted, however, that the review did not consider there to be justification for detailed product regulation in the supply of banking services to either SMEs or personal customers. It argued that such regulation would stifle innovation and blunt incentives to compete. As a direct consequence of this review, the government announced in December 2000 that a new regulatory framework is to be established to ensure effective competition between product providers, giving consumers real choice and innovative services at a fair price. Responsibility for implementation was given not to the FSA, but to another regulatory agency – the Office of Fair Trading (OFT). The Myners review: Institutional Investment in the United Kingdom (March 2001). The remit of the Myners review was to consider factors affecting investment decision-making by institutions, primarily pension and life funds. This report was published in March 2001 (Myners, 2001). At the heart of this review was the Treasury’s concern about industry standard investment patterns, which have tended to focus overwhelmingly on quoted equities and gilts, thus avoiding investment in the SME sector. The report concluded that savers’ money is too often being invested in ways that do not maximise their interests, and that it is likely to follow that capital is being inefficiently allocated in the economy. The Sandler review: Medium and Long-term Retail Savings in the UK (July 2002). Myners (2001) recommended that government should initiate a separate review of capital flows from personal investment products into pension and life funds. This was the purpose of the Sandler review, which reported in July 2002 (Sandler, 2002). The Review’s terms of reference were to examine medium- and long-term retail savings in the UK and to identify the competitive forces and incentives that drive the industries
concerned, in particular in relation to their approaches to investment. However, Treasury concerns about pension provision and long-term savings caused the review to adopt a wider remit. Consequently, the investigation shifted its focus from the original concerns about the efficiency of the investment chain to issues of how to encourage long-term savings by the personal sector. It concentrated on the need for the redesign of retail financial products. According to Gray (2002). the Sandler review could be seen as a self-standing prescription for re-regulating and re-shaping the retail financial sector. Sandler highlighted the increasing costs of compliance arising from the UK’s rigorous conduct of business rules. Such rules have effectively resulted in the exclusion of lower-income segments from the market. He proposed the creation of a simple suite of low-cost “stakeholder” products which could be sold without advice. Sandler sees the heart of the solution as product regulation, including strict limits on product features to ensure simplicity, and a cap on annual charges. This product regulation approach adopted by the Sandler Review contrasts with the FSA conduct of business approach. Paradoxically, the review recognised that the sale of all financial products is covered by regulations administered by the FSA. The question therefore arises as to whether or not the provision of low-cost, advice-free products meets the stringent conduct of business rules of the FSA. In order to address this question, the FSA has carried out independent research to assess the likely impact of such products on consumers. The FSA has indicated that further investigation is necessary before it can give its imprimatur (Financial Services Authority, 2003d). The Miles review: The UK Mortgage Market (December 2003 and March 2004). Finally, the remit of the Miles review was to undertake an analysis of the supply and demand factors limiting the development of the longer-term fixed rate mortgage market in the UK in order to establish why these products are so uncommon compared with the US and EU and to examine whether there has been any market failure. An interim report was submitted in December 2003 and a final report in March 2004 (Miles, 2003/4). This report has found that, in choosing between different mortgages, consumers attach more emphasis on initial monthly payments than on longer-term risks of rising interest rates. There is therefore a tendency for consumers to prefer mortgages based on short-term fixed rates or variable rates rather than longer-term fixed rate products. The review suggested, however, that many borrowers would be better off opting for longer term fixed rate products, and that this would also help to stabilise the housing market generally, thus benefiting the UK economy. The Miles review also finds that the UK market for new lending is highly competitive and that discounted rate mortgages are available from many lenders at below the cost of funds. This is possible because other existing borrowers are paying standard variable rates well in excess of the cost of funds. This cross-subsidisation is an undesirable feature of the UK mortgage market. As an illustration, Miles quotes average rates offered to borrowers in October 2003, comparing them with money market rates as an indication of the marginal cost of funds to lenders. The figures are summarised in Table II. As can be seen, discounted and short-term fixed rate products are currently offering little margin to providers, but there is a significant margin on standard variable rate products. With administration costs, some products are being sold at a net loss, being subsidised by loyal borrowers on standard variable rates.
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The first question arising from this review is whether the government will introduce regulations requiring lenders to provide the same terms to existing (loyal) customers as are available to new borrowers. This would have a significant impact on the marketing strategies of many banks and raise wider questions about the basis on which companies will compete in the future. The second question is whether government will put pressure on banks to promote longer-term fixed-rate products, or indeed introduce regulations limiting the sale of short-term deals. Again, this would have significant implications for product development. Discussion: the direction of regulatory policy and the implications for banks It is clear from the above description of the regulatory reviews under way in the UK financial services sector that there is a continuing question about the nature and extent of regulation policy in the context of financial products. The underlying problem which government and regulators are seeking to solve is one of information asymmetry between product providers and consumers. Research over many years has shown that consumers by and large lack understanding of the features and risks of financial products, and do not know which products to buy to meet their needs, particularly for long-term planning such as house purchase and retirement. Government and regulators also express concern about the UK industry’s practice of remunerating sales representatives with commission, which is seen as giving sales people an incentive to sell products (and products paying the highest commission), irrespective of the needs of consumers. Banks and financial services companies are seen by government, regulators and consumer groups as taking advantage of consumers. The issue in regulatory policy in the UK at the moment is whether this problem is best addressed by conduct of business rules or product regulation, or by a combination of these two approaches. Conduct of business rules have proved to be expensive to implement, while product regulation raises questions about companies’ freedom to innovate. The government’s position must be seen in the wider context of its concerns over the funding of the future welfare needs of an ageing population, its desire to promote long-term economic growth, and in the context of its stated intention of adopting the euro when and if the UK’s economy converges with that of the euro-zone. Banks and financial service companies have their own issues, as noted at the start of this paper. Increased competition has led to reduced operating margins and a consequent race for growth in volumes of business with consequent implications for business risk as well as industry structure and performance. Competitive strategies Mortgage rate (per cent) LIBOR/swap rate (per cent) Difference (per cent)
Table II. Pricing of UK mortgages, October 2003
Discounted variable Variable rate for term Standard variable rate 2 year fixed 5 year fixed 10 year fixed 25 year fixed Source: Miles (2003/4)
3.70 4.51 5.42 4.49 4.95 5.26 5.48
3.63 3.63 3.63 4.51 4.80 4.94 5.02
0.07 0.88 1.79 20.02 0.15 0.32 0.46
now rely more on product innovation and rationalisation, as well as customer service and retention. But, customers have been losing faith in many of the traditional financial institutions following the mis-selling scandals described earlier. If the financial services industry in general and the banking sector in particular is to avoid further regulation, it is vital that the industry “puts its own house in order”, as suggested by an independent think tank in a recent enquiry (Tomorrow’s Company, 2003). The challenge is to rebuild trust in the eyes of consumers, regulators and government in the wake of events of recent years. In the absence of acceptable and transparent reactions on the part of the industry, it is likely and increasingly inevitable that political pressures will continue to mount for stronger regulatory action, either product- or conduct-based. The future agenda for the banking industry must have as its foundation greater transparency with respect to business practices and product information – it must be about putting the customer first. Developing a market-oriented approach The UK regulator’s demand for banks to treat customers fairly and its stated preference for a market-based solution would seem to point banks towards a market-oriented approach to product development. However, the proposition put forward by Mahon and Murray (1981), referred to above, suggests that the banks are more likely to focus on the needs of the regulators rather than the needs of the customers. Superficially, the expressed needs of the regulators are the same as those of customers, as the regulators are acting in the customer’s interests in securing a fair deal for them. By satisfying the needs of customers, banks should therefore satisfy the regulator. But in reality the position may not be so simple. Regulators are created by law: they enforce law and are themselves subject to review by the courts. Black (1997) points out the limitations of using legal rulemaking in regulating financial services. It is difficult both to provide certainty and to maintain flexibility. Regulators are also subject to considerable political pressure and media attention. In a recent public hearing, for example, on the subject of “Restoring confidence in long term savings”, the chairman of the House of Commons Treasury Committee accused the chief executive of the FSA of being not just asleep on the job, but comatose. Regulators therefore need to be seen to be taking action. In this environment banks cannot afford to focus solely on the customer: they need to understand the pressures on the regulators. Also, the regulatory and policy environment is not straightforward, as indicated above, in that another arm of government, the Treasury, is seeking to influence product development. The empirical evidence presented in this paper suggests that banks and financial services companies have indeed been influenced in their product development by changes in government policy, which in turn has not always created value for customers. The other difficulty faced by banks in adopting a market-oriented approach is the industry’s legacy of commission-based selling, which creates a potential conflict of interest. However, no viable alternative to remunerating distributors, in particular for the advice given to consumers, is currently available. Certainly consumers are unlikely to pay for advice in the present circumstances. The impact of regulation: a research agenda One of the problems facing the UK financial services industry, its regulators and the government alike is that very little detailed research has been carried out into the
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impact of regulation and government policy on banks and financial services companies. Llewellyn (2000) points out that the FSA is committed to a systematic cost benefit analysis of the implications of regulation, but an exercise by one of the self-regulatory bodies taken over by the FSA identified that remarkably little analysis has been undertaken into the effectiveness of financial regulation, most especially with respect to the retail investment business. A review of the academic literature reveals a paucity of systematic work on identifying either the precise nature of the benefits or quantifying them. Ramaswamy et al. (1994) point out that very little is known about how individual firms react to centrally managed environments and how they compete to achieve superior profitability. Thus, with a few notable exceptions, the influence that regulation exerts on firm-level behaviour and performance is largely uncharted territory. We do not have an adequate understanding of the manner in which regulated organisations make strategic choices that drive performance outcomes. With this lack of systematic research and analysis, and in the absence of a theoretical framework, it is difficult for banks, regulators and governments to make informed decisions. There is therefore a need for further research. The data presented earlier in this paper show that the UK regulatory and policy framework in which banks and financial services companies have been operating has changed very significantly and regularly since the early 1980s, and this change is continuing, and indeed is accelerating. The analysis of the data suggests that this changing environment has had a direct impact on product development, and on companies’ performance. There have, however, been other changes in the environment over the last two decades, not least in terms of information and communications technology, and in terms of the basic economic conditions (lower inflation and interest rates, and now lower equity yields). We can therefore expect the history of product development to have been influenced by a number of different factors. Further research is therefore in order to understand the events of the last 20 years in more depth and to enable banks and financial services companies to manage future regulatory and government policy change. The research questions arising are: . How have changes in the UK regulatory and policy environment influenced product development in retail financial markets? To what extent has regulation and policy change driven product development? . How has the industry’s use of commission-based selling affected the behaviour of product providers and distributors towards their customers? And how has this in turn affected the response of regulators and government? The related propositions to be tested are: . as the environment in which banks and financial service companies have been operating in the UK has become more regulated, the less they have focused on the customer and the more they have responded to the demands of the regulator and government; and . the industry’s commission-based product distribution has contributed towards this lack of customer orientation.
References Alam, I. (2003), “Innovation strategy, process and performance in the commercial banking industry”, Journal of Marketing Management, Vol. 19 No. 9/10, pp. 973-99. Association of British Insurers (2003), “Restoring confidence in long-term savings”, Memorandum submitted by the Association of British Insurers: endowment mortgages, House of Commons Select Committee on Treasury, written evidence, available at: www.parliament.uk/ parliamentary_committees/treasury_committee.cfm Black, J. (1997), Rules and Regulators, Clarendon Press, Oxford. Cooper, R.G. and Edgett, S.J. (1996), “Critical success factors for new financial services”, Marketing Management, Vol. 5 No. 3, pp. 26-37. Cruickshank, D. (2000), Competition in UK Banking: A Report to the Chancellor of the Exchequer, HM Treasury, London. Financial Services Authority (2002), “£11.8 billion compensation for pension reviews”, available at: www.fsa.gov.uk/pubs/press/2002/070.html Financial Services Authority (2003a), “Financial Services Authority calls on banks to treat their customers fairly”, available at: www.fsa.gov.uk/pubs/press/2003/126.html Financial Services Authority (2003b), “Objectives”, available at: www.fsa.gov.uk/objectives/ Financial Services Authority (2003c), “Publications/speeches”, available at: www.fsa.gov.uk/ pubs/speeches Financial Services Authority (2003d), “FSA publishes results from Sandler selling regime research”, available at: www.fsa.gov.uk/pubs/press/2003/130.html. Financial Services Authority (2004), “Restoring confidence in long-term savings”, Further memorandum submitted by the FSA on endowment mortgages, House of Commons Select Committee on Treasury, written evidence, available at www.parliament.uk/ parliamentary_committees/treasury_committee.cfm Flier, B., Van den Bosch, F.A.J., Volberda, H.W., Carnvale, C.A., Tomkin, N., Merlin, L., Quelin, B.V. and Kriger, M.P. (2001), “The changing landscape of the European financial services sector”, Long Range Planning, Vol. 34, pp. 179-207. Gray, J. (2002), “Sandler Review of medium and long-term savings in the UK: dilemmas for financial regulation”, Journal of Financial Services Regulation and Compliance, Vol. 10 No. 4, pp. 385-92. Institute of Financial Services (2004), Hidden Value: Understanding the Impact of Regulatory Change on Financial Services, Financial World, London. Langerak, F., Hultink, E.J. and Robben, H.S.J. (2004), “The impact of market orientation, product advantage, and launch proficiency on new product performance and organizational performance”, Journal of Product Innovation Management, Vol. 21, pp. 79-94. Littler, K. and Hudson, R. (2003), “The impact of regulatory change on retail financial product distribution in the UK”, Journal of Financial Regulation and Compliance, Vol. 11 No. 1, pp. 71-80. Llewellyn, D.T. (2000), “Financial regulation: a perspective from the United Kingdom”, Journal of Financial Services Research, Vol. 17 No. 1, pp. 309-17. Mahon, J.F. and Murray, E.A. (1981), “Strategic planning for regulated companies”, Strategic Management Journal, Vol. 2, pp. 251-62. Miles, D. (2003/4), The UK Mortgage Market: Taking a Longer-term View, HM Treasury, London.
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Myners, P. (2001), Institutional Investment in the United Kingdom: A Review, HM Treasury, London. Nellis, J.G., McCaffery, K.M. and Hutchinson, R.W. (2000), “Strategic challenges for the European banking industry in the new millenium”, International Journal of Bank Marketing, Vol. 18 No. 2, pp. 53-63. Ramaswamy, K., Thomas, A.S. and Litschert, R.J. (1994), “Organisational performance in a regulated environment: the role of strategic orientation”, Strategic Management Journal, Vol. 15, pp. 63-74. Sandler, R. (2002), Medium and Long-term Retail Savings in the UK, HM Treasury, London. Slater, S.F. and Narver, J.C. (1999), “Market-oriented is more than being customer-led”, Strategic Management Journal, Vol. 20, pp. 1165-8. Taylor, B. (1999), “The Darwinian shakeout in financial services”, Long Range Planning, Vol. 32 No. 1, pp. 58-64. Tomorrow’s Company (2003), The Twenty-first Century Investment Summit, City and Financial Conferences, London. Treasury Select Committee (2004), “Restoring confidence in long-term savings”, House of Commons Select Committee on Treasury, written evidence, available at www.parliament. uk/parliamentary_committees/treasury_committee.cfm Trethowan, J. and Scullion, G. (1997), “Strategic responses to change in retail banking in the UK and Irish Republic”, International Journal of Bank Marketing, Vol. 15 No. 2, pp. 60-8.
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Enhancing microfinance outreach through market-oriented new service development in Indian regional rural banks
Enhancing microfinance outreach
Philip Megicks, Atul Mishra and Jonathan Lean
Received March 2004 Revised June 2004 Accepted June 2004
Plymouth Business School, Faculty of Social Science and Business, University of Plymouth, Plymouth, UK
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Abstract Purpose – Hitherto, assessments of the effectiveness of Indian microfinance institutions in achieving their economic and social goals have largely identified only limited success. Critics of Indian regional rural banks (RRBs) and their prevailing culture have argued that a product-focused rather than a market-oriented approach to new service development (NSD) is responsible for their inadequate performance. With this in mind, this work aims to develop a conceptual understanding of the factors influencing market orientation in these institutions, and to assess its impact on outreach performance. Design/methodology/approach – Following an extensive review of the literature on the Indian microfinance sector, market orientation and new service development, a model framework for understanding the relationships between the factors affecting outreach performance in Indian RRBs is developed. Research propositions for further evidence-based investigation are posited. Findings – The attitudes and behaviours of managers, along with institutional characteristics, are identified as influences on market orientation, service innovation, customer satisfaction and outreach performance within RRBs. Research limitations/implications – This paper is theoretical in its nature and as such proposes a basis for a detailed empirical examination of the proposed model and its associated propositions. Practical implications – Banking practitioners need to be aware that market orientation may influence NSD and performance in this and related contextual situations. Originality/value – The conceptual relationships proposed inform those seeking to enhance the performance of RRBs of some of the key internal marketing issues involved in their success, and thus give direction to the development of policies to reduce poverty. In particular, cultural issues relating to perceptions of customers and their effect on effective NSD are examined. Keywords Financial institutions, Services, Design and development, Market orientation, Banks, India Paper type Conceptual paper
Introduction Although microfinance institutions (MFIs) in India have had some success in overcoming many of the structural barriers that have militated against the provision of financial services to the poor, it is widely believed that only limited progress has been made in the lower strata of the poverty spectrum (Short, 2000). Indeed it appears to be the case that the very poor are excluded from much MFI activity, and many of those that do initially participate tend to drop out of microfinance programmes. The reason for such failure on the part of MFIs, especially Indian regional rural banks (RRBs), in achieving greater participation and retention of customers in the very poor segment of the market has been suggested to be a lack of market orientation within the supplying
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 107-125 q Emerald Group Publishing Limited 0265-2323 DOI 10.1108/02652320510577393
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organisations (Woller, 2002). In particular it has been argued that these MFIs are essentially product- rather than customer-led in their approach to business. Their main focus is regarded as being on institutional rather than customer requirements, which is evidenced through offering standardised products to a market which is perceived as homogeneous, but which is in reality highly variable in its constituency. In India, institutional parameters and the attitudes of RRB managers together with unclear strategies for product development resulting from a conflict between commercial and social objectives are considered to be key factors in this situation arising. Proponents of a market-oriented approach suggest that MFI outreach to the poorest groups in society will only be achieved if the heterogeneity of the microfinance market is recognised and a targeted offer of financial products and services is provided which takes account of the specific needs of this client grouping. It has been proposed that there is essentially a failure in the marketing of MFIs that leads to high default and low repeat uptake, which can be explained in terms of a lack of a market orientation amongst RRBs and their staff. Recent studies suggest that this is manifested in the undifferentiated financial instruments offered to the market (Institute for Development Policy and Management, 2002) and the constraining attitudes of bank employees (Department for International Development, 2002). Given that the market orientation of RRBs is seen to be a critical determinant of success in microfinance provision, greater understanding of the implementation of the marketing concept in this context is a highly desirable research direction. Moreover, if a market-led approach to new financial service development and delivery is to be implemented within these MFIs, then the factors that influence the extent and nature of market orientation within Indian RRBs require further investigation. The existing literature relating to market orientation and organisational performance is well defined and provides a strong theoretical platform from which to build an understanding of Indian RRBs pursuing their outreach objectives. Evidence from a plethora of empirical studies across a large number of nations and contexts suggest that market orientation facilitates the attainment of organisational goals through acquiring a deeper understanding of customer requirements and competitive conditions, and the implementation of integrated marketing effort to deliver value-based propositions to the market. This paper builds on this theory to provide a conceptual understanding of how RRBs’ performance may be improved through enhancing their new service provision in a market-oriented manner, considers how this is influenced by managerial and organisational characteristics, and presents a set of policy related research propositions for furthering the understanding of the processes involved. Funding small enterprises through Indian RRBs RRBs in India are an integral component of the microfinance sector, which comprises a number of institutions that utilise “self-financing” methods of poverty alleviation. The main principle supporting their purpose is their ability to unite the social and economic agendas of developing countries by fulfilling the twin goals of growth and profit-earning capacity while at the same time providing opportunities for the poor to benefit from their own commercial endeavours. From an economic development policy perspective, access to credit is one of the main constraints in setting up of small and medium-sized enterprises, and lack of availability of working capital is one of the main reasons for business failure in the rural sector (Liedholm and Mead, 1999). Studies in
India have also identified that access to credit is the main constraint in setting up an enterprise in the rural non-farm sector and the main reason for business failure (Ramola and Mahajan, 1996; Fisher and Mahajan, 1997). Along with other institutions in this framework, the rural banking sector has had a positive impact on moving millions of people upwards across the poverty line by means of the credit provided to them to follow their commercial pursuits. Yet in terms of their overall effects there remains massive scope for further inroads into the small-scale, high-risk financial services market that will further perpetuate the positive growth spiral which successful microfinance affords. It has been suggested by critics of the current approach that the combined outreach of all Indian MFIs is less than five million in a country of over one billion people (Thorat, 1999), and the vast proportion of Indian rural households still remain without access to credit (estimated as 70 per cent by Mahajan and Ramola, 1996). In the rural setting this is highly inconsistent with the presence of nearly 200 RRBs with approximately 30,000 branches, and the glaring mismatch between credit advances and deposits indicated by a ratio of around only 25-30 per cent (South Asian Network of Microfinance Initiatives, 2001). At the same time there appears to be a buoyant demand for the services of both the innovative and traditional competitors of RRBs, which have penetrated the very poor segment in a sustained manner. A range of public sector commercial banks and semi-formal suppliers have introduced financial vehicles through schemes such as those based on flexible credit card accounts, self-help groups, cooperatives and joint liability groups. Furthermore, the informal financial sector, including moneylenders and pawnbrokers, has been a long-standing provider of credit facilities to the rural poor and remains highly active in this respect. In spite of charging very high interest rates they retain their appeal to poor clients over the more structured RRB products as they offer advantages in terms of speed and flexibility. Notwithstanding the liberalisation of the RRBs through interest rate ceiling deregulation in 1991, which addressed some of the structural rigidities encountered, there would still appear to be major shortcomings in achieving their outreach targets to small enterprises in the poorest strata of Indian society. The main issue surrounding the effectiveness of RRBs is not the simple matter of providing low “price” loans, but developing financial products that are simultaneously desirable for their clients in addition to being commercially viable to themselves. Indeed it has been argued that the system of providing uneconomic, subsidised loans has had a detrimental rather than positive impact on economic development through enterprising inclusion of the poor (Braverman and Guasch, 1986). This has been evidenced in a number of ways, not least in the closing down of 50 Indian RRBs since 1991 (as their losses were so great that they could not be recapitalised), which has reduced access. Even though some subsidy may be important in the initial stages of policy implementation for financial inclusion through credit schemes, this would appear to be an extremely “blunt” instrument for sustained development (Mosley, 1996). Moreover, it is vital for the continuation of schemes through government-sponsored financial institutions that they are permitted to become self-sustainable (Bennett and Guevas, 1996). In so doing, as Robinson (1996) suggests, there must be a shift in the culture of both recipients and providers in terms of recognising that their goals are achievable through moving from a one-way flow of grant funds to project beneficiaries (finance as charity) to reciprocal contracts between
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institutions and clients who buy financial services and pay for them (finance as business). Unfortunately, there appears to have been little progression of this relationship to date, as RRBs seem reluctant to lend to the very poor, even at higher rates of interest, because they do not consider it to be cost-effective business due to the expense of the bureaucratic monitoring, control and reporting procedures imposed. Conversely, borrowers consider such schemes to be relatively inflexible, particularly with regard to the way that these same procedures impinge upon them and effectively raise the non-interest cost of capital. Their preference therefore is to still use moneylenders and some of the newer institutional suppliers rather than deal with the RRBs, whose main remit is to facilitate credit provision in this sector. The reluctance and misunderstanding that prevails in this exchange situation indicates a clear deficiency of orientation toward their markets on the part of the suppliers, which is likely to make a significant contribution to the failure of RRBs in fulfilling their outreach mission. In particular the divergence between the requirements of clients and the financial services offered suggests that in general RRBs have a very limited market orientation, which contributes to poor performance (Dunn, 2002). This is manifested in many ways, but especially in terms of how a rather narrow view of the customer base, founded upon the prevailing culture and attitudes of staff, restricts the development and marketing of suitable products to meet the specific needs and wants of their clients (Wright, 2000). The main purpose of this paper is not only to establish theoretical links between market orientation, new service development (NSD) and outreach performance, but also to suggest how these relationships might be investigated. This will be undertaken through deeper understanding of the factors that contribute to the adoption of a market-led culture and process within organisations, how this influences NSD, and how this contributes to client satisfaction and retention. In addition the proposed research provides a platform for public policy on NSD which could be taken forward via the National Bank for Agriculture and Rural Development (NABARD) which regulates and supervises the functions of RRBs in India. Market-oriented culture and process The provenance of the marketing concept manifested through the market orientation construct has been the subject of much recent academic enquiry (see Pulendran et al., 2003 for a contemporary overview). In particular, the validity of a market-led approach to organisational success has triggered significant investigation of the nature of a market orientation (Shapiro, 1988; Ruekert, 1992; Webster, 1992; Deshpande´ et al., 1993; Siguaw and Diamantopoulos, 1995) its principal components (Narver and Slater, 1990; Kohli and Jaworski, 1990; Kumar et al., 1998), its antecedents and barriers to implementation (Felton, 1959; Ennew et al., 1993; Jaworski and Kohli, 1993; Slater and Narver, 1995; Avlonitis and Gounaris, 1999; Harris, 2000) and its relationships with performance outcomes (Hooley et al., 1990; Diamantopoulos and Hart, 1993; Greenley, 1995; Doyle and Wong, 1998; Pelham, 1999; Harris, 2001). Following Narver and Slater (1990), a wealth of literature suggests that market orientation is a corporate culture, a philosophy of doing business, which exemplifies an organisation’s ability to deliver superior value to its customers. This is regarded as being attributable to its adoption of an information management process that informs and supports mechanisms to provide effective solutions to customers’ needs in competitive markets (Kohli and Jaworski, 1990). The ensuing offers it provides are seen
to be the result of an integrated effort on the part of its management and its employees across all departments to deliver customer satisfaction, which in turn leads to the achievement of organisational objectives. These two main strands of research, that have provided the focus for much of the work in this field, have brought together the inter-related perspectives of organisational behaviour derived from a prevalent market-based culture and market intelligence to facilitate marketing management decisions. The conjugation of these approaches has led to a generally accepted view of market orientation being presented that combines both managerial and cultural dimensions (Lafferty and Hult, 2001), and which is fundamentally contingent on the behaviour of management (Harris and Piercy, 1999). Indeed the essence of superior corporate performance is recognised as being related to an information management protocol that enables the adoption and implementation of a market-oriented culture. In so doing, the organisation requires that market intelligence relating to both customers and competitors be acquired, shared, and acted upon. Moreover, such intelligence is seen to be the platform from which company resources can be channelled into means of creating value for buyers (Day, 1994). Additionally, the coordination of effort across the different functional aspects of the organisation in achieving this is regarded to be a key element of a market orientation as it is instrumental in delivering customer value, and such coordinated activity needs to come to fruition through strategic decisions leading to the commitment of resources in an appropriate manner to achieve this (Ruekert and Walker, 1987; Ruekert, 1992). Crucially, therefore, it is evident that the behaviour of management is integral to determining the success of organisations through their enactment of market-oriented information processing activities to develop and support market-led strategy. Equally, management behaviour is integral to the creation of a market-oriented culture through influencing the prevailing values and beliefs of staff together with their shaping of the systems, structures and processes that impinge on the organisation’s ability to deliver customer value in its market offers. The interconnectedness of the managerial and cultural dimensions of market orientation is presented in the work of Slater and Narver (1995), which although emphasising culture, recognises the role of information-related behaviour, and further underscores the important part played by management. The key, they suggest, is in the way that market orientation is associated with organisational learning processes (Sinkula, 1994), and more importantly in this context, how this supports innovativeness in a firm’s culture (Hurley and Hult, 1998). These authors further develop their argument in terms of how market-oriented behaviour influences the implementation of new ideas and the development of new products or processes, suggesting that competitive advantage can be gained as a consequence. Market orientation and new service development Market-oriented culture and information management processes influence behaviours that affect stakeholders in such a way as to fundamentally impinge on organisational performance. Based on the principle of sustainable competitive advantage (Day, 1994), it is argued by proponents of market orientation that consistently outstanding performance is achieved through the superior customer value afforded by greater understanding of markets and the more effective marketing management that ensues. If enhanced market orientation can be translated into more successful NSD, then improved performance can be attained. Yet, although conceptually appealing, the
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principle of market-oriented success is not wholly supported by the results of extant research. Recent literature is replete with empirical studies of the relationship between market orientation and various organisational performance measures, but the evidence of a direct positive link is somewhat equivocal. Many studies have found positive associations between performance outcomes and levels of market orientation (e.g. Narver and Slater, 1990; Ruekert, 1992; Jaworski and Kohli, 1993; Kumar et al., 1998). However, others have identified that performance is related to market orientation only under moderated environmental conditions (Greenley, 1995; Harris, 2001). Furthermore, variations in the relationship have been identified between nations. Specifically, organisations in Western developed economies have been investigated in a number of studies and differences in the relationship within these different settings have been evident: see the USA (Jaworski and Kohli, 1993) with the UK (Greenley, 1995). More recently similar studies have been undertaken in different parts of the world in economies at different stages of their development, and those in transition, which have taken account of varying economic conditions and cultural factors. Such studies have been carried out using samples of firms in such settings as Hong Kong (Ngai and Ellis, 1998), Saudi Arabia (Bhuian, 1998), Ghana (Appiah-Adu, 1998), Central European states (Hooley et al., 2000), and China (Deng and Dart, 1999; Tse et al., 2003). The results are again not wholly consistent, although in general evidence supports a positive link between market orientation and performance. Both organisational and market characteristics have presented additional contextual studies to be undertaken which have produced similar findings, including business-to-business (e.g. Avlonitis and Gounaris, 1997), service markets (e.g. Chang and Chen, 1998) and small firms (Pelham, 1999). Of key significance is a recent study based upon data from a wide cross-section of Indian firms (Subramanian and Gopalakrishna, 2001), which suggest that the principle of market orientation-performance enhancement holds within the Indian culture, and moreover, that the link is a direct one which is not moderated by specific national economic factors. In addition, they investigated the success of new products and services as one of the performance criteria and found a significant association with market orientation in the regression models which is generally in line with other studies that have considered the effects of market orientation on new product and innovation performance (Gatignon and Xuereb, 1997; Vorhies et al., 1999; Atuahene Gima and Ko, 2001). However, although alternative perspectives have been offered on the exact nature of the impacts of market orientation on innovative new product development and performance (Atuahene Gima, 1996), the view is largely held that positive associations pertain across relevant areas to this study, including to business-to-business firms (Vasquez et al., 2001) and service organisations (Agarwal et al., 2003). Further work in the field also suggests that the nature of market orientation (customer and competitor orientations and interfunctional coordination) rather than simply its extent has an impact on new product performance (Lukas and Ferrell, 2000). A number of investigations of market orientation have been undertaken in the financial services sector and in particular the banking industry throughout the world (e.g. Bhuian, 1997; Han et al., 1998; Webb et al., 2000; Lwiza and Nwankwo, 2002). In general the market orientation construct is deemed to be equally applicable to service providers as it is to firms offering tangible goods, and this appears to apply in different
national conditions. In the main the organisational performance-market orientation relationship holds for banks and financial institutions as it does for other sectors. Indeed beyond the individual firm, it has been suggested that aspects of a market orientation can be responsible for the transformation of banking into a more successful industry generally, especially under conditions of deregulation in developing economies (Lwiza and Nwankwo, 2002). When assessing performance, studies have tended to focus on banks’ financial assessment of their own performance, based upon their self-evaluation of their market orientation. Yet it is clear from the findings of some studies that wider measures of performance such as customer satisfaction and service quality can also be attributed to customers’ perceptions of market orientation (Webb et al., 2000). Further, it has been posited that such success can stem from the level and nature of innovation within these firms, which in turn contributes to new product performance. Market orientation is regarded as an important antecedent of product innovation procedures, and in the context of banking this may involve both technical and administrative innovation. Specifically, additional value and resultant performance improvement can be offered to banking customers through technical innovations pertaining to products, services and production process technology, or administrative innovations involving organisational structure and administrative processes (Han et al., 1998). Results of the empirical analysis undertaken by these authors suggest that market orientation facilitates new product performance and that innovation mediates the relationship between market orientation and performance in banking. This supports the view stated by Deshpande´ et al. (1993) and Slater and Narver (1995) that the innovative capacity of a business in its market environments is related to organisational innovativeness associated with a market-oriented culture. This is further developed in the context of service organisations generally by Agarwal et al. (2003), who identify market orientation as the spur to innovation that enhances performance. They argue that this is critical to service firms in particular as they have to use service innovation as a means of differentiated competitive advantage in markets where patents and copyrights are not relevant. Building upon the same general principles, the growing body of literature focusing on NSD, much of which is based in the financial services sector (see Johne and Storey, 1998 for a detailed review) identifies aspects of market orientation as being critical to new service product success (Bowers, 1989; Easingwood and Storey, 1991, 1993; Martin and Horne, 1993; Edgett, 1994, 1996; Storey and Easingwood, 1995; Johne, 1996; Alam, 2002; Alam and Perry, 2002). In addition to effective management of the NSD process, they generally highlight the benefits of implementing a market-driven development procedure, particularly with respect to the extensive involvement of customers in the process and beyond into the post-launch phase. Indeed, there are arguments made for all the components of a market-oriented activities to be considered as relevant in the planning and delivery of new services, including understanding both the customer and competitor dimensions of the market along with the cross-functional integration of NSD processes (Edvardsson and Olson, 1996; Froehle et al., 2000; Papastathopoulou et al., 2001). Further, extant research, particularly that of Johne and his colleagues in financial services businesses, offers the proposition that the cultural, structural and behavioural dimensions of banking organisations’ NSD activity will influence their ability to deliver products to market consistent with customers’ needs and consequently achieve their objectives (Johne and Harborne, 1985; Johne and
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Managerial and organisational factors influencing market orientation The evidence available from studies that have considered the effectiveness of Indian MFIs in fulfilling their outreach targets in the “poorest of the poor” classification of customers suggests that attitudes of staff and a range of organisational considerations detract from their understanding of market requirements, and hence their ability to provide different offers to the market to take account of variations in demand across customer segments (e.g. Wright, 2000; Department for International Development, 2002). This is fully in keeping with the view, which prevails in the market orientation literature, that explores various obstacles and impediments to the development of a market orientation (for example Felton, 1959; Jaworski and Kohli, 1993; Harris, 1996, 2000; Avlonitis and Gounaris, 1999). The literature is summarised essentially in terms of market orientation being dependent upon the actions, attitudes and behaviour of managers, as well as the organisational characteristics of the firm (Harris, 2002). Existing research into the barriers to improved market orientation has uncovered an assortment of attitudinal, behavioural, system-related and strategic issues which affect the firm’s capability to be market-oriented in both its culture and information management behaviour. Plainly, from a practical perspective, the corollary of the recognition of such variables as being instrumental in explaining low levels of market orientation, suggests that overcoming them will facilitate the enactment of market-oriented behaviour and better NSD, and thus brief further discussion of their contribution is warranted. Unfavourable management attitudes and behaviours are apparent in terms of their inadequacies to cope with complex situations and their pursuit of personal gain. Felton (1959) sees this as a function of inexperience, limited capability, incomplete integration of functions, and power-related issues. This is enacted in practice both at functional and top management level with the real burden being squarely shouldered by the senior executives who have the ability to influence organisational culture amongst their more junior management, and enact appropriate structural changes (Jaworski and Kohli, 1993; Slater and Narver, 1995). Indeed, it has been suggested that the inadequacies of top management are a key obstacle to developing stronger market orientation, particularly in service industries (Harris and Piercy, 1999). The need to change attitudes and behaviour is critical to success in this endeavour and thus identification of the barriers in place may suggest solutions to the problem. Within many businesses and industries the ability and willingness to change is a critical factor. Thus it would appear that impediments exist when reluctance to change stems from cultural artefacts which are commonplace across organisations and institutions, and the sheer difficulty in modifying conventional thinking and practices (Wong et al., 1989). This is further supported by work from the banking industry (Kelley, 1990), which suggests that employees at all levels may gain from market orientation but are predisposed to resist change. A lack of cooperation and coordination across functions is also commonplace, which further inhibits market orientation when the marketing function is in a weak political position compared with other functions in organisations (Whittington and Whipp, 1992).
In addition, organisational barriers proposed by Jaworski and Kohli (1993), including low structural connectedness and high centralisation, act as barriers to market orientation whilst other elements of structure including departmentalisation and formalisation do not contribute to the extent market orientation. Additionally, Lichtenthal and Wilson (1992) recognise the reduction of structural distance as a factor in enacting change, and (Harris, 2000) identifies the benefits of the introducing integration mechanisms to overcome conflict and facilitate interfunctional marketing within organisations Model framework and research propositions An outline of a model framework for understanding the relationships between the factors influencing outreach performance in Indian RRBs is illustrated in Figure 1. The model, which is presented as a means of enhancing performance, indicates the proposed relationships between the study variables and suggests that key aspects of Indian RRBs influence market-oriented behaviour, which facilitates the NSD process to provide financial services that are consistent with customer requirements. This leads to greater satisfaction and retention of customers, and hence fulfils outreach targets through the delivery of credit accounts (and where appropriate linked savings products) to customers in this segment engaged in commercial activity. A review of literature relevant to each of the aspects of the operation of Indian RRBs in attempting to achieve their goals in their markets suggest the following research propositions that are identified in the model: P1.
The attitudes and behaviours of the managers of Indian RRBs are associated with the extent and nature of their market orientation.
One of the key dimensions in determining the way in which market-oriented behaviour is enacted in the study context organisations are the attitudes and behaviours of their managers, founded upon the values and the assumptions that they bring to their position and those engendered from their experience. Specifically these are important when considering how they perceive the needs of the target market and hence influence the development and delivery of suitable products to encourage borrowing by these commercial clients. In particular the extent to which managers’ attitudes and behaviours towards very poor clients are preconceived needs to be evaluated in terms of how they facilitate or preclude a real understanding of their requirements. This factor requires examination not only at the level of the branch manager of the RRBs, but also senior managers of the institutions at head office. Furthermore, the extent to which attitudes encompass a realisation of the competitive nature of the environment in which they operate need further exploration. The investigation of this proposition would consider the relationship between these attitudes and behaviours and the level of market orientation of RRBs as well as the emphasis put on its constituent components. Results may indicate how existing attitudes and behaviours of managers could in some ways be shaped by policy interventions ranging from specific training initiatives to assist in better understanding the needs of customers and the competitive dimension of the market, to the more generalised promotion of enterprise culture and innovativeness through education programmes. This aspect therefore represents a possible lever for government and public policy through their agencies monitoring bank outreach effectiveness.
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Figure 1. Outline model framework for enhancing MFI outreach through market-oriented new service development (NSD) in Indian regional rural banks, showing model stages, proposed relationships and associated outcomes
P2.
The organisational characteristics of Indian RRBs are associated with the extent and nature of their market orientation.
Further antecedents contributing to market-oriented behaviour lie in the characteristics of the Indian RRBs that either assist or hinder its enactment in this context. Of particular relevance are the structures, systems and processes that support the understanding of customers and competitors, and the coordination of effort to supply value-based services. The applied market orientation literature, along with that relating to RRB practices, suggests that the organisational management structures, decision-making and control systems, and recruitment and reward processes merit further investigation. The evaluation of this proposition would consider the relationship between these organisational characteristics and the level of market orientation of RRBs in addition to weight given to its constituent elements. From a management and policy perspective, implications of this aspect of the research may suggest possible opportunities for intervention in the operational organisation of RRBs that impinge upon NSD activities. This could be enacted by NABARD, through which a number of institutional development initiatives for RRBs have been introduced that could be further extended to take account of empirical findings. Of particular significance would be the provision of computerised systems for the handling of market information that would enable more effective understanding of both the client base and competitors’ behaviour. P3.
The extent and nature of market orientation in Indian RRBs are positively related to the effectiveness of their NSD processes.
It is proposed that the degree to which market-oriented activity is adopted and how this is manifested in the specific dimensions of customer and competitor intelligence together with interfunctional coordination is fundamental to the effectiveness of NSD in these institutions. The proposition is predicated on the understanding that new service development, leading to the provision of targeted offers to the identified client groups, will be enhanced in a market-oriented culture that institutes the necessary market information management processes. In particular, the literature suggests that the extent of the use of information relating to clients in NSD and their direct involvement in the process and post-development evaluation is regarded as key to success: competitor information is also deemed to be a critical aspect of an effective NSD process leading to correct positioning; and the integrated cross-functional development of new financial service is clearly a significant element in ensuring that products are created which deliver value to customers. Exploring current NSD activities in light of the established relationships provides important insights into how improvements to the process of developing new products can be achieved through a market-led approach. The emerging implications for those with a responsibility for policy in government and their agencies will link specifically to earlier propositions regarding managerial and organisational factors, plus those that relate specifically to how better NSD processes may be configured. Of key significance will be opportunities for initiatives that give rise to an improvement in the proactive efforts made by RRB managers to get closer to customers and understand their specific product requirements.
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P4.
The effectiveness of NSD processes in Indian RRBs is associated with levels of customer satisfaction and retention.
The proposition suggests that effective NSD based upon market understanding and involving internal processes to configure appropriate offers will contribute to the delivery of financial service products to meet customer requirements. As a consequence, the careful tailoring of financial instruments to fulfil the specific borrowing needs of the very poor will lead to more satisfied clients and their continued use of the services of RRBs rather than those of other suppliers. The existing cultural, structural, and behavioural aspects of NSD within RRBs need detailed investigation to assess their contribution to effective new financial service provision, particularly in terms of the market-oriented dimensions of the processes involved. Further understanding of the fit between current NSD processes, the products offered, and customer satisfaction and re-use levels is required. Assessing the validity of this proposition will involve identifying how the processes employed by RRBs in their development of new financial services lead to varying levels of client satisfaction, and the extent to which this affects customer loyalty. This is especially important when gauging the way in which very poor customers evaluate the product’s flexibility and any additional transaction costs incurred compared with competitors’ offers, and the effects that this has on default rates. For Indian government microfinance policy makers and institutions there are potentially very important advantages to be gained from developing a market-focused NSD process that not only responds to the specific needs of customers but also displays an awareness of competitive contingencies. P5.
Customer satisfaction and retention are positively related to Indian RRB outreach performance and poverty reduction.
This proposition restates the fundamental purpose of Indian RRBs in market-led terms by suggesting that the successful provision of financial service products to poor members of society for commercial purposes is, in a competitive market, dependent on their ability to deliver customer satisfaction. Moreover, customer retention is deemed to be dependent on the provision of more flexible products that will improve satisfaction levels. The anticipated behaviour of these commercial clients in the poorest segment will be to acquire credit, which provides the necessary working capital to stimulate small enterprise development and provide the associated poverty-alleviating benefits. The examination of the real impacts of customer satisfaction and retention by RRBs on poverty through small business lending initiatives merits detailed further consideration. Nonetheless, the commitment of the Indian government and its banking agencies to tackling poverty through the RRB framework appears firm and rooted in the belief that it can be successful if new, innovative loan products are developed and customer service is improved. Indeed, taking a lead from those banks in the sector that do perform well and from competitive suppliers of credit suggests that real inroads into the alleviation of poverty through outreach will be achieved if market-led NSD can create products that genuinely meet the credit needs of targeted borrowers. P6.
The extent and nature of market orientation in Indian RRBs are positively related to Indian RRB outreach performance and poverty reduction.
The final proposition summarises the central argument of this paper, which associates the failure of RRBs in their aim to achieve greater lending to the very poor with their lack of market orientation, leading to ineffective NSD and unsatisfactory market offers. Conversely the model framework presented focuses on how developing a market orientation can improve the success of RRBs in their outreach endeavours by creating market-led financial services. The relationships that are delineated warrant more explicit analysis, not only in terms of the general level of market orientation, but also with regard to the form that it takes and the emphasis afforded to its different dimensions, and additionally its interconnectedness with the processes involved in developing new services. In order to achieve this, an extensive empirical investigation based upon testing of the model’s variables, associations and propositions is required.
Investigatory method A substantial, integrative three-stage programme of field research would be conducted to provide the data for analysis to validate and develop the model framework proposed here. In-depth qualitative investigation, based upon case study analysis (Yin, 1984) of a cross-section of Indian RRBs would be undertaken in the first instance to understand the constructs identified and proposed relationships between them further. A purposive stratified sample of RRBs based on urban-rural location, size and past performance would be selected for the case studies. Analysis at the organisational level would enable specification of variables and measures relating to organisational characteristics, new service development processes, customer retention and outreach performance. Within the case studies, face-to-face, semi-structured interviews with a sample of managers at different levels of the organisation (head office and branch) should be incorporated to provide a deeper feel for their attitudes and behaviours toward their markets and the way that these are affected by inherent values and assumptions. In line with some of the original studies of market orientation, qualitative research will provide detailed insights into how extant construct measures for market orientation, its dimensions together with attitudinal and behavioural antecedents might apply in the context of RRBs and how they may need to be adapted to take account of specific characteristics of these organisations and their markets. Following this phase of research, a quantitative study would be enacted to test the model relationships based on already validated or adapted measures. Within the same RRB sampling frame a further stratified sample would be selected for stage two which would be large enough to support the statistical modelling technique adopted. The research instrument would be based on a standardised questionnaire and respondents would be identified as those managers able to provide the required information, and integral to the new service development process. Depending on data availability and appropriateness, a combination of subjective self-report measures and objective data would be collected for all of the variables in the model. Stage three of the investigation would involve the collection of quantitative data from a matched sample of clients from the same RRBs used in the previous stage, again using a standardised self-report questionnaire that would specifically measure levels of customer satisfaction and give a customer perspective of the bank’s market orientation. Data collected from the two quantitative phases would be analysed using a proprietary structural equation modelling package such as LISREL (Joreskog and Sorbom, 1990), which would enable
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testing the validity and reliability of model variable measures and the research propositions posited. Conclusions and implications This paper provides an overview of some of the main aspects of the extant market orientation research set within the context of RRBs’ future provision of financial products to the poor, and offers a platform for the development of a detailed examination of the factors that may determine their future success based upon an effective new service development process. On the basis of the normative research undertaken hitherto, it appears that the problems encountered with marketing failure in the Indian microfinance sector are associated with the prevailing culture, attitudes and behaviours, which are fundamentally not conducive to developing a long-term, market-led approach to poverty alleviation through financial product innovation. Based upon the conceptually developed model framework presented, it is suggested that a market orientation is key to attaining organisational performance goals in Indian RRBs. The model proposes relationships between its constituent variables and develops propositions relating to the antecedents of market orientation in Indian RRBs together with how this translates into effective NSD leading to improved outreach performance. The methodology outlined specifies how relationships between variables may be identified and the extent to which they enable a clearer exposition of the factors contributing to improved NSD in this context, which further explains the banks’ ability to retain customers. The implications for managers in these institutions that can be derived from this conceptual research are attainable at two levels. Initially we can examine how further research founded on the model framework can provide deeper knowledge of the relationships proposed, and subsequently more general recommendations for change can be outlined. Results of the proposed empirical research will provide a strong platform from which policy decisions relating to the factors associated with market-led success through improved NSD processes can be instituted. In particular it may highlight areas of existing good practice which can be disseminated across the RRB sector, specifically with regard to the involvement of customers in the product development process and the inclusion of a competitive dimension when identifying new service opportunities leading to more flexibility in product design. To facilitate this further, training and management development initiatives with positive attitudinal and motivational outcomes for managers can be instituted. In addition the significant contribution that marketing information systems and internal marketing activities can make to enhancing market orientation should trigger investment in these areas which will in turn benefit customers through more effective NSD. In the more immediate future, however, this research suggests that RRBs’ senior managers and those involved from influential government institutions should reflect on the way that they set out to tackle poverty alleviation through the market provision of financial services. Having identified that market orientation is generally important to attaining organisational performance goals, this will need to be further developed from the perspective of RRBs, taking account of possible incongruence between financial and non-financial criteria. This will also need to be extended to take account of both customer and management perceptions of success in addition to any objective
measurement that may be possible, for example the evaluation of new product performance. Additionally, even though culture, attitudes, and behaviour have been identified as generic factors in determining how market orientation may be improved and effective NSD processes introduced it is important that specific elements of RRBs’ structure systems and processes are considered. To this end it will be necessary to explore important aspects of these dimensions, including not only local managers’ attitudes to customers, but also the attitudes of senior managers to risk and innovation, as well as their commitment to introducing a market-led and NSD-facilitated approach to achieving their intentions with respect to poverty alleviation.
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Mosley, P. (1996), “Regional rural banks”, in Hulme, D. and Mosley, P. (Eds), Finance against Poverty, Vols. I and II, Routledge, London. Narver, J. and Slater, S. (1990), “The effect of market orientation on business profitability”, Journal of Marketing, Vol. 54, October, pp. 20-35. Ngai, J. and Ellis, P. (1998), “Market orientation and business performance: some evidence from Hong Kong”, International Marketing Review, Vol. 15 No. 2, pp. 119-39. Lwiza, D. and Nwankwo, S. (2002), “Market-driven transformation of the banking sector in Tanzania”, International Journal of Bank Marketing, Vol. 20 No. 1, pp. 30-51. Martin, C. and Horne, D. (1993), “Services innovation: successful versus unsuccessful firms”, International Journal of Services Industry Management, Vol. 4, pp. 48-64. Papastathopoulou, P., Avlonitis, G. and Indounas, K. (2001), “The initial stages of new service development: a case study from the Greek banking sector”, Journal of Financial Services Marketing, Vol. 6 No. 2, pp. 147-62. Pelham, A. (1999), “Influence of environment, strategy, and market orientation on performance in small manufacturing firms”, Journal of Business Research, Vol. 45, pp. 33-46. Pulendran, S., Speed, R. and Widing, R. (2003), “Marketing planning, market orientation and business performance”, European Journal of Marketing, Vol. 37 No. 3/4, pp. 476-97. Ramola, B. and Mahajan, V. (1996), “Financial services for the rural poor and women in india: access and sustainability”, Journal of International Development, Vol. 8, March/April, pp. 211-26. Robinson, M. (1996), “Some key questions on finance and poverty”, Journal of International Development, Vol. 8 March-April, pp. 153-61. Ruekert, R. (1992), “Developing a market orientation: an organisational strategy perspective”, International Journal of Research in Marketing, Vol. 9, pp. 225-45. Ruekert, R. and Walker, O. (1987), “Marketing’s interaction with other functional units: a conceptual framework and empirical evidence”, Journal of Marketing, Vol. 51, January, pp. 1-19. Shapiro, B. (1988), “What the hell is ‘market oriented’?”, Harvard Business Review, Vol. 66, pp. 119-25. Short, C. (2000), “Foreword”, in Rutherford, S. The Poor and Their Money, Oxford University Press, Delhi. Siguaw, J. and Diamantopoulos, A. (1995), “Measuring market orientation: some evidence on Narver and Slater’s three-component scale”, Journal of Strategic Marketing, Vol. 3, pp. 77-88. Sinkula, J. (1994), “Market information processing and organizational learning”, Journal of Marketing, Vol. 58, January, pp. 35-45. Slater, S. and Narver, J. (1995), “Market orientation and the learning organisation”, Journal of Marketing, Vol. 59, July, pp. 63-74. South Asian Network of Microfinance Initiatives (2001), Innovations in Microfinance Products and Delivery Mechanisms in India, SANMFI Publications, Dhaka. Storey, C. and Easingwood, C. (1995), “Determinants of new product performance; a study in the financial services sector”, International Journal of Services Industry Management, Vol. 7, pp. 32-55. Subramanian, R. and Gopalakrishna, P. (2001), “The market orientation performance relationship in the context of a developing economy: an empirical analysis”, Journal of Business Research, Vol. 53, pp. 1-13.
Thorat, Y. (1999), “Status and prospects of microfinance in India”, paper presented at the 3rd Annual Seminar on New Development Finance, Goethe University, Frankfurt. Tse, A., Sin, L., Yau, O., Lee, J. and Chow, R. (2003), “Market orientation and business performance in a Chinese environment”, Journal of Business Research, Vol. 56, pp. 227-39. Vasquez, R., Santos, M. and Alavarez, L. (2001), “Market orientation, innovation and competitive strategies in industrial firms”, Journal of Strategic Marketing, Vol. 9, pp. 69-90. Vorhies, D., Harker, M. and Rao, C. (1999), “The capabilities and performance advantages of market-driven firms”, European Journal of Marketing, Vol. 33 No. 11/12, pp. 1171-202. Webb, D., Webster, C. and Krepapa, A. (2000), “An exploration of the meaning of outcomes of a customer-defined market orientation”, Journal of Business Research, Vol. 48, pp. 101-12. Webster, F. (1992), “The changing role of marketing in the organisation”, Journal of Marketing, Vol. 56, October, pp. 1-17. Whittington, R. and Whipp, R. (1992), “Professional ideology and market implementation”, European Journal of Marketing, Vol. 26 No. 1, pp. 52-63. Woller, G. (2002), “From market failure to marketing failure: market orientation as the key to deep outreach in microfinance”, Journal of International Development, Vol. 14 No. 3, pp. 305-24. Wong, V., Saunders, J. and Doyle, P. (1989), “The barriers to achieving stronger market orientation in British companies: an exploratory study”, Proceedings of the Marketing Education Group Annual Conference, Oxford, pp. 35-64. Wright, G. (2000), Microfinance Systems: Designing Quality Financial Services for the Poor, Zed Books, Dhaka. Yin, R. (1984), Case Study Research: Design and Methods, Sage Publications, Thousand Oaks, CA. Further reading Harris, L. (1998), “Cultural domination: the key to market-oriented culture?”, European Journal of Marketing, Vol. 32 No. 3/4, pp. 354-73. Kohli, A., Jaworski, B. and Kumar, A. (1993), “MARKOR: a measure of market orientation”, Journal of Marketing Research, Vol. 30, November, pp. 467-77.
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Note from the publisher Emerald structured abstracts have arrived! After months of preparation by journal editors, authors and Emerald publishing staff, structured abstracts are ready for publication in all Emerald journals. The abstracts appear in journals from the first issues of all 2005 volumes and a glance at any article title page in this journal will illustrate the format and style of the new-style abstracts. The format differs slightly in the electronic version of articles on Emerald’s web site but this is only a cosmetic variation and takes account of the different medium and way in which people use abstract information. The idea for the structured abstracts came about at the start of 2004 and a small team has worked on the design and introduction of structured abstracts throughout the year. Thanks to the hard work of everyone involved in producing this journal, Emerald is now able to showcase the abstracts for the first time. We believe they provide real benefits to our readers and researchers and that they answer some of the key questions journal users have about a paper without them having to scan or read the entire article. Some of these questions might include: . “What research has been conducted on this topic?” . “How was the research approached – what methods were used?” . “What were the main findings?” . “Are there any literature reviews on this topic and are they selective or inclusive?” . “So what? The authors have shown this but what does this mean for my work/ organization?” . “I want to conduct research in this area but what questions still need to be answered?” . “Has this work got any relevance and value for me?” . “What did the writer set out to show?” Structured abstracts provide the answers to these kinds of questions without the researcher having to go any further into the article itself. Authors can be more confident that their paper will be noticed and read by others with a real interest in the topic or research. As far as possible, we have alerted our authors and editorial team members to this change via Literati Club Newslines and communications with journal editors. Authors who have been asked to rewrite their abstracts in the new format have readily obliged. The response from all parties has been very encouraging: Structured abstracts are increasing in popularity among the social and behavioral sciences.
International Journal of Bank Marketing Vol. 23 No. 1, 2005 pp. 126-127 q Emerald Group Publishing Limited 0265-2323
There’s overwhelming evidence that readers (and indexers) glean more from structured abstracts (Jonathan Eldredge, MLS, PhD, AHIP, Associate Professor, School of Medicine, Academic & Clinical Services Coordinator and Author, Health Sciences Library and Informatics Center, Health Sciences Center, The University of New Mexico, USA).
For more on structured abstracts and their value for researchers and writers, read the short paper by Liz Bayley and Jonathan Eldredge at: http://research.mlanet.org/ structured_abstract.html Everyone has difficulties in the digital environment in weighing up the value of any piece of information and structured abstracts go some way towards a remedy to the problem of information overload. Emerald is the very first publisher in the management field to introduce structured abstracts and whilst we are mindful that this means change for authors and researchers, we feel our pioneering work in this area gives our journals a strong competitive advantage. We are pleased and proud to be the first in the field to implement this extremely good idea. Unfortunately, we are unable to go back through more than 40,000 papers already in Emerald’s database to change already-published abstracts into structured ones. On a more positive note, however, nearly 5,000 new papers will be deposited into the database this coming year and all will be accompanied by a structured abstract. Emerald would be pleased to hear what you think about this initiative. E-mail your views to Sue de Verteuil, Head, Editorial Developments at: sdeverteuil @emeraldinsight.com
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